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Ch01 ppt

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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..;-)

Uploaded by Faizan Chaudhry..:)

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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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  • Transcript

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

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