Chapter 1 Introduction to Economics PDF

ECO415 ECONOMICS CHAPTER 1 (EBOOK CHAPTER 1 & 2) Introduction to Economics Learning Outcome By the end of this chapter, students should be able to: 1) Define economics 2) Differentiate between microeconomics and macroeconomic 3) Explain basic economic concepts...

ECO415 ECONOMICS CHAPTER 1 (EBOOK CHAPTER 1 & 2) Introduction to Economics Learning Outcome By the end of this chapter, students should be able to: 1) Define economics 2) Differentiate between microeconomics and macroeconomic 3) Explain basic economic concepts 4) Describe basic economic problems  SECTION 1 Define economics and Differentiate between Microeconomics and Macroeconomics  Definition of Economics Study of how people use their limited resources to fulfill unlimited wants and need. Economists study the choices we make and also the consequences of these choices. Divided into two branches: Microeconomics (p19) Macroeconomics (p19) focuses on the choices made by individual considers the economy's overall participant in the economy, like as performance and examines it from a consumers, households, workers, business larger viewpoint. It is the study of the managers, and investors, to get a close look economy as a whole and also referred to as at the economy. aggregate economic activity. deal with price and output in particular the branch of economics that studies the markets, as well as the relationship between total, or aggregate, economy's structure, markets. performance, behavior, and decision-making. E.g: household income, individual prices E.g: national income, general price level and production of particular product. and national/total output  SECTION 2 Basic economic concepts  Basic economic concepts Scarcity (p17) Situation of lack or shortness of supply. In economics, it refers Land –Inputs into to the situation where human want are exceed the available production that are Labor – All forms of economics resources that is used provided by nature such human input, both as input in the production of as raw materials from physical and mental, goods and services. the surface of earth, into current production. scarce – impossible to satisfy forests, mineral and oil The reward is wage our unlimited wants – limited deposits. The reward is resources rent. wants always exceeding limited Entrepreneur – The Capital – All inputs into resources person who has the production that have capability to combine all themselves been Peoples’ wants are greater than the economy’s ability to resources into the produced such as produce desirable goods & production of goods and factories, machineries, services services. The reward is equipment and tools. profit The reward is interest Because of our resources are limited, we must choose and sacrifice one thing for another  Choices Opportunity Cost (p17) We have to choose from the available The amount of other products that alternatives because of scarcity. must be forgone or sacrificed to produce a unit of a given product. Choice refers to a consumer's or producer's ability to choose from a An opportunity cost is the advantage variety of goods, services, or resources that would have been gained if a to purchase or produce. different alternative had been chosen. Opportunity Scarcity Choice Cost E.g: Company A has 5 workers, and the company tries to produce 2 goods, which are biscuits and mineral water, which each require 5 workers (scarcity). Because of limited resources, company A has to choose either to produce biscuits or mineral water (choice). If the consumer prefers to buy mineral water, company A will choose to produce mineral water. Thus, company A needs to forgo (opportunity cost) biscuits.  SECTION 3 Basic economic problems  Basic economic problems What to produce? How to produce? Types of goods the society wants Methods of production to produce given limited factors (labor or capital intensive) of production The cheapest method of production (eg: radios or televisions) – minimum cost of production How much to produce? For whom to produce? The quantity of goods to be Depend on distribution of income produced depends on demand and target group and the use of scarce resources. (rich, poor, working people, etc)