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Economics Chap1


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  • 1. Chapter 1 Definition of economics the study of how individuals and societies use limited resources to satisfy unlimited wants. Resources are limited but human wants are unlimited.
  • 2. Economics • Economics is the social science that analyzes the production, distribution and consumption of goods and services. Fundamental economic problem scarcity. individuals and societies must choose among available alternatives.
  • 3. Economic resources/Factors of Production • land – natural resources, the “free gifts of nature” • labor – the contribution of human beings • capital – plant and equipment • Entrepreneurial ability/Organization/ Management
  • 4. Resource payments Economic Resource Resource payment land rent labor wages capital interest entrepreneurial ability profit
  • 5. Positive and normative analysis • Positive economics – attempt to describe how the economy functions – relies on testable hypotheses – What is? • Normative economics – relies on value judgments to evaluate or recommend alternative policies. – What can be done?
  • 6. Economic Methodology • scientific method – observe a phenomenon, – make simplifying assumptions and formulate a hypothesis, – generate predictions, and – test the hypothesis.
  • 7. Branches of Economics • Economics has two branches: microeconomics and macroeconomics. • Microeconomics is the branch of economics that deals with the personal decisions of consumers and entrepreneurs.
  • 8. Microeconomics • Its primary concern is to help consumers and investors make their lives better by increasing their earnings and satisfying their needs despite limited resources. • Also included in its study are the consumers' decisions on what products to buy and how the cost of commodities is determined.
  • 9. Microeconomics • What Does Microeconomics Mean? • The branch of economics that analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households.
  • 10. Microeconomics • It is concerned with the interaction between individual buyers and sellers and the factors that influence the choices made by buyers and sellers. • In particular, microeconomics focuses on patterns of supply and demand and the determination of price and output in individual markets (e.g. coffee industry).
  • 11. Macroeconomics • Macroeconomics deals with the larger aspects of a nation's economy, such as the sectors of agriculture, industry, and service. • It aims to • (a) speed up the economy's growth rate and increase total production; • (b) increase the rate of employment; Investopedia explains Macroeconomics: Macroeconomics is focused on the movement and trends in the economy as a whole, while in microeconomics the focus is placed on factors that affect the decisions made by firms and individuals. What Does Macroeconomics Mean?
  • 12. Macroeconomics • (c) keep the prices of commodities stable so that they remain affordable; • and (d) have sufficient reserves for foreign exchange for importing goods and paying off loans. The field of economics that studies the behavior of the aggregate economy Macroeconomics examines economy-wide phenomena such as changes in: unemployment, national income, rate of growth, gross domestic product, inflation and price levels……..Etc.