Chapter 1 - Introduction to Economics PDF

Chapter 1- Introduction to Economics Definition Economics: The study of how society chooses to allocate its scarce resources in order to satisfy unlimited wants. the branch of knowledge concerned with the production, consumption, and transfer of wealth. Greek word of economics - 'Oikos'...

Chapter 1- Introduction to Economics Definition Economics: The study of how society chooses to allocate its scarce resources in order to satisfy unlimited wants. the branch of knowledge concerned with the production, consumption, and transfer of wealth. Greek word of economics - 'Oikos' means household and 'Nomous' means management. OIKONOMIA referred to "household management" Chapter 1- Introduction to Economics Definition Economics is the scientific study of the ownership, use, and exchange of scarce resources – often shortened to the science of scarcity. Economics attempts to explain economic behaviour, which arises when scarce resources are exchanged. Chapter 1- Introduction to Economics Adam Smith: Scottish Economist (1723-1790) The Invisible Hand Theory “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest Chapter 1- Introduction to Economics Definition Basic Economic Concepts Scarcity Unlimited Human wants and needs Economic Resources and Factors of Production Chapter 1- Introduction to Economics Definition Scarcity is the limited availability of a commodity, which may be in demand in the market or by the commons. Scarcity also includes an individual's lack of resources to buy commodities. The opposite of scarcity is abundance. Chapter 1- Introduction to Economics Unlimited Human wants and needs A basic condition of human existence which means that people are never totally satisfied with the quantity and variety of goods and services the consume. It means that people never get enough, that there's always something else that they would want or need. Chapter 1- Introduction to Economics Definition Unlimited Human wants and needs Needs Essential for human survival. Needs are best thought of as physiological or biological requirements for maintaining life, such as the need for air, water, food, shelter, and sleep. Chapter 1- Introduction to Economics The Basis of Human Wants Hierarchy of needs 1.Physiological needs 2.Safety needs 3.Social needs 4.Esteem 5.Self-actualization Chapter 1- Introduction to Economics Hierarchy of needs 1. Physiological needs – refers to the needs associated with our basic bodily functions. 2. Safety needs – involve protection against danger, threat and deprivation. 3. Social needs – include the need of acceptance, association, belongings, and giving and receiving of love and friendship. Chapter 1- Introduction to Economics Hierarchy of needs 4. Need for esteem – involves our self- confidence, feeling for authority and independence, status and recognition, and respect. 5. Self-actualization or self-fulfilment – realizing our own potential. Chapter 1- Introduction to Economics Definition Unlimited Human wants and needs Wants Those that are desired but not essential for survival. Three categories of Wants 1.Personal factors – includes sex, race, age, and other demographic factors 2.Psychological factors – involve a person’s motivation, perception, ability and knowledge, attitude, personality and lifestyle. 3.Social factors – include roles and family influences, social class and culture. Chapter 1- Introduction to Economics Definition Chapter 1- Introduction to Economics Scarce Economic Resources Factors of Production (FOP): The resources used to create goods and services Land: Any natural resource provided by nature. Labor: The mental and physical capacity of workers to produce goods and services. Capital: Any physical man-made good used to produce other goods. Entrepreneurship: Vision, skills, and risk-taking needed to create and run a business. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Land refers to all natural resources that exists without man interventions. It encompasses all things derived from the forces of nature such, as air, forests, vegetation, and minerals. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Labor refers to human inputs such as manpower skills that are used in transforming resources into different products that meet our needs. The mental and physical capacity of workers to produce goods and services. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Capital man-made factor of production used to create another product. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Entrepreneurship is the creation or extraction of value. With this definition, entrepreneurship is viewed as change, which may include other values than simply economic ones. Vision, skills, and risk- taking needed to create and run a business. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Entrepreneur a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so. Chapter 1- Introduction to Economics Problem of Scarcity Scarcity: The condition in which human wants are forever greater than the available supply of time, goods, and resources. 3 Economic Questions What will be Produced? How will it be Produced? For whom will it be produced? Chapter 1- Introduction to Economics Problem of Scarcity 3 Economic Questions What will be Produced? – Prioritize goods which we deem to be the most important. How much to Produced? – Product should be identified due to the limited resources. How will it be Produced? – Technique and machineries should be used identified. For whom will it be produced? – Since the resources are scarce, the economy has to decide for whom it will produce goods. The goods are produced according to the paying capacity of the people.