Topic 1 Introduction To Economics PDF

BEEB 1013 PRINCIPLES OF ECONOMICS TOPIC 1 INTRODUCTION TO ECONOMICS  BEEB 1013 PRINCIPLES OF ECONOMICS Topic Outline  Definitions of Economics  Economic Define: Scarcity, Choice and Opportunity Cost  Ceteris Paribus and Theory  Scope of Economic:  Microeconomic...

BEEB 1013 PRINCIPLES OF ECONOMICS TOPIC 1 INTRODUCTION TO ECONOMICS  BEEB 1013 PRINCIPLES OF ECONOMICS Topic Outline  Definitions of Economics  Economic Define: Scarcity, Choice and Opportunity Cost  Ceteris Paribus and Theory  Scope of Economic:  Microeconomic  Macroeconomic  Normative  Positive  BEEB 1013 PRINCIPLES OF ECONOMICS  Definition of Economics Economics is the social science that study of how individuals and societies make decisions (choose) to use limited or scarce resources to satisfy their unlimited wants.  Definition of Economics is built on two economic problems: 1) Scarcity: resources are limited relative to wants 2) Choice: individuals and societies can never have everything they desire, must make choices  Therefore, Economics is also the science of scarcity and the study of choices.  BEEB 1013 PRINCIPLES OF ECONOMICS Unlimited/InfiniteWants Wants Tangible or Intangible Tangible – something that can be touched, seen, heard or smelled e.g. book, machinery Intangible – something that can not be touched, seen, heard or smelled e.g. patents, copyrights Good or Bad Good - something that provides utility or satisfaction e.g. book, postal service People want goods Bad - something that provides disutility or dissatisfaction e.g. pollution People don’t want bads Anything that provides utility or satisfaction To satisfy our wants, we need resources to produce goods (and services)  BEEB 1013 PRINCIPLES OF ECONOMICS Limited/Finite Resources/Factors of Production/Inputs Land  any natural resources  minerals, forests, water, air, unimproved land Labour human skill and effort, physical or mental talents contribute to the production process work done for income Capital physical/fixed capital durable input productive input is used in production man-made factories, machinery, tools, computers, buildings, equipment Entrepreneu  combining and organising the resources of land, labour and capital to produce output  ability to sell products, take risks and make profits rship  creative to seek new ideas/ways/technologies/opportunities for business  BEEB 1013 PRINCIPLES OF ECONOMICS  Economic Define: Scarcity, Choice and Opportunity Cost The condition The decisions that exists individuals and Scarcity Choice when there are societies make limited about the use resources to of scarce reso satisfy all the urces. wants of People make individuals or choice because societies. scarcity exists Opportun ity Cost  BEEB 1013 PRINCIPLES OF ECONOMICS  Ceteris Paribus and Theory A Latin term, meaning all other things held constant/ Ceteris nothing else change/ all else equal when one variable Paribus is changed. Example: “As the price of computer rises, the quantity demanded of computer falls and as the price of computer falls, the quantity demanded of computer rises, ceteris paribus” A change in quantity demanded of computer is brought only by a change in a computer’s own price. Assuming all other factors nothing (do not) change such as income and price of software. Theory is a generalized explanation of how nature works. A plausible or rational explanation of cause and Theory effect relationships among a group of observed phenomena Example: The theory of demand states that “As the price of computer rises, the quantity demanded of computer falls and as the price of computer falls, the quantity demanded of computer rises, ceteris paribus” Negative relationship between price of computer and quantity demanded of computer.  BEEB 1013 PRINCIPLES OF ECONOMICS  Scope of Economics Microeconomics Macroeconomics Deal with human behaviour and Deal with human behaviour and choices as they relate to the entire choices as they relate to relatively small economy - looks at the whole, the units – looks at the individual, a firm, an aggregate level. industry, a single market. The branch of economics that The branch of economics that examines the workings, performances examines individual decision-making at and problems of the economy as a firms and households and the way they whole. interact in specific industries and Focuses on variables such as GDP markets, and the influence of growth, inflation and unemployment - governments. on a national scale. Examples: Examples: Price of nasi lemak. Aggregate price level. Can government spending and taxes How do changes in government affect consumer behavior? spending and taxes affect the Wages in the automotive industry. economy? Total wages and salaries.  BEEB 1013 PRINCIPLES OF ECONOMICS  Scope of Economics Positive Economics Study of ‘what is’ or “what will be” in economic matters Based on facts (data and economic reality as well) Deal to with cause-effect relationship Testable; prove such statements false by evidence through direct experience & observation Can be disproved or rejected by reference to the facts Example: What will happen if government reduce the income tax? Normative Economics Study of ‘what should be’ or “what ought to be” in economic matters Deal to with value of judgements and subjective opinions; express own judgements about what is good and about what is bad, what is desirable or undesirable, what is right or wrong Focused on what we believe should be or ought to be Untestable; impossible to prove such statements false by referring to factual evidence gained through direct experience and observation. Example: Should the government cut taxes to stimulate the economy?  BEEB 1013 PRINCIPLES OF ECONOMICS Conclusion Unlimited/Infinite Wants Ceteris Paribus Economics & Theory Economic Problem Scarcity Choices Microeconomics Limited/Finite vs Resources Opportunity Macroeconomic Cost s Positive Land Capital Economics vs Normative Economics Labour Entrepreneurship