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These Presentation are a Gift 4rm Sir Hassan to BSPA 1st Year..Study Well..;-)

These Presentation are a Gift 4rm Sir Hassan to BSPA 1st Year..Study Well..;-)

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  • 3 The Quantity of productive resources refers to the physical amount of resources available. It is affected by: resource endowment and population. The Quality of productive resources refers to the productivity of resources and is affected by: Technology, education and training of workforce. By increasing the quantity and/or quality of resources we achieve ECONOMIC GROWTH.
  • 3 The Quantity of productive resources refers to the physical amount of resources available. It is affected by: resource endowment and population. The Quality of productive resources refers to the productivity of resources and is affected by: Technology, education and training of workforce. By increasing the quantity and/or quality of resources we achieve ECONOMIC GROWTH.
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Ch01 ppt Ch01 ppt Presentation Transcript

  • PART 1 ECONOMIC CONCEPTS AND SYSTEMS Chapter 1 Economic concepts
  • Lecture Plan
    • What is Economics?
    • Scarcity
    • Basic economic problems
    • Production possibility analysis
  • What is Economics?
    • Economics is the study of how people and society choose to employ scarce productive resources to produce goods and services and distribute them among various groups of society
    • ECONOMICS
      • Macroeconomics Microeconomics
  • Microeconomics vs. Macroeconomics
    • Microeconomics = the study of individual consumers, firms and industries
      • (‘Micro’ = the ancient Greek word for ‘small’)
    • It focuses on:
      • The pricing and production decisions of industrial firms
      • Consumer behaviour and
      • The output and state of single industries
    • Macroeconomics is concerned with how the economy functions as a whole (e.g. total income)
      • (‘Macro’ is the Greek word for ‘large’)
  • Scarcity
    • Every economy is endowed with what we call resources , which are inputs used in the production of goods and services for consumption to satisfy our needs and wants
    • The basic economic problem of any society is the relative scarcity of resources in relation to the unlimited needs and wants of consumers
  • Resources
    • Resources = All inputs that can be combined in many different ways to produce goods and services of various types to help satisfy people’s unlimited needs and wants
    • Often referred to as the factors of production
    • Resources include land, capital, labour and enterprise
  • Land
    • All natural resources and endowments
    • Examples: soils, crops, minerals, forests, oceans
    • Critical resource for Australia (e.g. exports)
    • The least flexible resource
    • Factor income: rent
    • Abundant resource for Australia but an increasingly scarce resource for East Asian countries (e.g. Singapore)
  • Capital
    • Any good or service used to produce others (i.e. intermediate goods)
      • e.g. factories, tools, machinery and equipment
    • Most abundant factor for industrial countries (e.g. United States, Japan)
    • Factor income: interest
    • Note: Expenditure on capital is Investment
  • Labour
    • Labour = Physical and mental work of people, whether, skilled or unskilled
    • Examples: mechanics, doctors, farmers, computer programmers
    • Most flexible resource
    • Most abundant resource in developing countries
    • Factor income: wages
  • Enterprise
    • Management (e.g. ownership, control and/or coordination) of the other three factors of production (entrepreneurship)
    • Covers the various organisational skills of ‘entrepreneurs’
    • Example: business managers
    • Factor income: profit
  • Characteristics of Resources
    • Scarce
      • Have alternative uses
      • Limited, finite
    • Quantity of resources
      • Physical amount of resources available
      • Affected by resource endowment and population
      • Australia’s cropland is 463 000 sq. km, while Indonesia’s cropland is 324 000 sq. km
      • Australia’s labour force is around 9 – 10 million people, while Indonesia’s workforce is over 90 million people
    (cont.)
  • Characteristics of Resources (cont.)
    • Quality of resources
      • Productivity of resources
      • Affected by technology, education and training of workforce
      • Land productivity (yield/ha)
      • Labour productivity (production per person)
    • We achieve economic growth by increasing the quantity and/or quality of resources
  • Consumer Needs and Wants
    • Needs: those things necessary to human survival e.g. food, shelter
    • Wants: goods/services desired by the consumer e.g. hi-fi, travel, luxury cars
    • Characteristics:
      • unlimited
      • recurrent
      • complementary
      • changeable
  • Satisfying Needs and Wants Production Distribution Consumption
  • Basic Economic Questions 1. What To Produce? 2. How To Produce? 3. For Whom To Produce? Scarcity Choices must be made
  • Opportunity Cost
    • The Basic Economic Problem of Relative Scarcity is illustrated by two concepts:
      • Opportunity Cost, and
      • The Production Possibility Frontier (PPF)
    • Opportunity cost = The sacrifice (or alternative forgone) in choosing to satisfy one need or want rather than another
    • Note: Situations where there is NO opportunity cost = free goods
  • Production Possibility Frontier (PPF) Theory
    • A simplified economic model which portrays scarcity , choice and opportunity cost
    • The Static Production Possibility Frontier
    • Analyses the economy at a fixed point in time
    • Is based on the following assumptions:
      • There is a fixed quantity of resources
      • The economy only produces two products
      • Resources can be used interchangeably
      • All resources within the economy are used
      • Resources are used at maximum efficiency
  • An Example of the Static PPF Model
    • Production Possibility Schedule
    • A B C D E
    • Tractors 0 100 200 300 400
    • VCRs 800 600 400 200 0
  • The PPF Graph Tractors Video recorders 200- 400- 300- 100- 800 400 200 600 PPF E D B C 0 A
  • Maximum Output Levels
    • The PPF shows the maximum output of the economy
    • If the economy devotes all of its resources to the production of VCRs it is able to produce 800 (+ zero tractors) — Production Possibility A
    • Alternatively, if the economy chooses Production Possibility C it is able to produce 200 tractors and 400 VCRs
  • Opportunity Costs
    • The PPF shows that to produce more of one product means producing less of another
    • Opportunity costs of production can be measured e.g. if the economy moves from point C to D (along the PPF) it will produce an extra 100 tractors BUT 200 VCRs must be sacrificed
    • Hence the opportunity cost is 200 VCRs
  • Points Outside the Static PPF
    • Points outside the PPF (e.g. X) are not possible using existing technology and resources
    A B .X PPF
  • Points Inside the Static PPF
    • At point Y, the economy is satisfying fewer needs and wants than is possible
    • This is due to:
      • Resources not being fully employed and/or
      • Resources not being used in the most efficient way
    A B . Y PPF
  • The Dynamic PPF Model
    • This model differs from the static PPF in that it incorporates changes over time
    • It demonstrates the effect of changes in the quantity and quality of productive resources e.g. new resource discoveries, improvements in technology
    • Changes in the quantity and/or quality of resources will SHIFT the PPF
  • Dynamic PPF
    • When the quality/quantity of resources increases (decreases), the economy can produce more (less) of both products and the entire curve will SHIFT outwards (inwards)
    A
  • Note
    • If the change in resources affects ONLY one product, the PPF will ONLY shift on one axis e.g.:
    A B A B OR
  • The Significance of PPF Shifts
    • Increased maximum output levels enable:
      • higher levels of consumption
      • greater satisfaction of consumer needs and wants
    • Improvements in the quality of resources results in the more efficient use of scarce resources