Principles of economics by amir alagab
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Principles of economics by amir alagab Principles of economics by amir alagab Presentation Transcript

  • Principles of Economics By. Amir Alagab A.Gadir GC University By Amir A.A.GADIR . Int. Capacity Building Trainer Cell phone + 249 908580182 e-mail : [email_address] bsacooba@gmail.com Next
  • Where this Word “ Economics ’’ come from? By Amir A.A.GADIR . Int. Capacity Building Trainer The term economics comes from the Ancient Greek “oikonomia” which means "management of a household, administration. Oik House O CV nomia Management Next
  • What is Economics? By Amir A.A.GADIR . Int. Capacity Building Trainer Products Service Distribution Consumption Next
  • Economics – Definitions Economics is the study of how scarce resources are allocated among unlimited wants. Adam Smith The branch of social science that deals with the production and distribution and consumption of goods and services and their management. Wikipedia Economics is the study of how society manages its scarce resources. N.G. Mankiw By Amir A.A.GADIR . Int. Capacity Building Trainer
  • To understand this definition, we must examine the concepts of scarcity , economic choice , and rational self-interest. By Amir A.A.GADIR . Int. Capacity Building Trainer Concepts Next
  • By Amir A.A.GADIR . Int. Capacity Building Trainer Human Nature and Reality
    • People have unlimited wants .
    • People have limited resources to acquire the things they want.
    • As a result, they must make choices .
    • Choices involve pursuing some things while forgoing others.
    Next
  • 7 By Amir A.A.GADIR . Int. Capacity Building Trainer Scarcity, Goods and Bads
    • An item that costs something is called scarce .
      • Anything with a price on it is called an economic good — these include goods and services .
      • A free good is a good for which there is no scarcity.
    • An economic bad is anything you want to get rid of (pollution, disease, garbage)
  • Goods 8 By Amir A.A.GADIR . Int. Capacity Building Trainer
    • Economic Goods : Its not found by nature and to obtain it you need to specific limit of resources to get it
    • Free Goods: its naturally available in a big quantities and no efforts pied to obtain it, e.g oxygen ”air “ and water sometimes .
    • Necessary Goods, which satisfy the human biological needs e.g food, water , clothing and shelter.
    • Luxurious Goods : Most people believe to obtain it its urgent.
    • as we see its not easy to differentiate between the necessity goods and luxurious one.
    • Ordinary Goods : it’s the goods that it’s demand increases when the individual income increases vice-versa.
    • Inferior Goods : its satisfying human needs in a low quality and when the income increase will move to better quality
    • Perishable –Vanishing- Goods : the goods that looses its satisfying power after one time use e.g food stuffs.
    • Durable Goods : the goods which satisfy the needs several times and lose its satisfaction gradually e.g clothes, equipment
    • Complementary Goods: it’s the goods that can not satisfy the need separately unless we use other goods with it , e.g Tea and sugar . Car and fuel.
    • Substitute Goods : it’s the goods that one can substitute other one to satisfy certain need, e.g Tea vs Coffee – Meats vs fish.
    • Consumer Goods : It’s the goods that prepared for final consumption with any transforming process. E.g cloth, food.
    • Capital Goods: It’s the goods that can’t used directly to satisfy the needs unless transformed, e.g Tools
  • Clarifying Concepts 9 By Amir A.A.GADIR . Int. Capacity Building Trainer
    • Scarcity means that not enough is available for free.
    • A shortage occurs when not enough is available at the current price. A shortage is a problem of price .
    • Poverty occurs when the goods are scarce, and those who need them do not have the income to obtain them. Poverty is a problem of income .
  • Flow of Income Spending Revenue Income = Flow of inputs and outputs = Flow of INCOME Goods and services bought Goods and services sold Labor, land, and capital Factors of production Wages, rent, and profit FIRMS
    • Produce and sell
    goods and services
    • Hire and use factors
    of production
    • Buy and consume
    goods and services
    • Own and sell factors
    of production HOUSEHOLDS
    • Households sell
    • Firms buy
    MARKETS FOR FACTORS OF PRODUCTION
    • Firms sell
    • Households buy
    MARKETS FOR GOODS AND SERVICES
  • Goods to Produce Goods 10 By Amir A.A.GADIR . Int. Capacity Building Trainer
    • Resources are the elements needed to produce goods. Resources are also called
      • factors of production
      • inputs
    • They are:
      • Land (includes natural resources)
      • Labor (physical and intellectual services of people)
      • Capital (plant, machinery, equipment used in production)
  • 11 By Amir A.A.GADIR . Int. Capacity Building Trainer Resource Suppliers land labor capital rent wages interest Producers of Goods Next
  • 12 By Amir A.A.GADIR . Int. Capacity Building Trainer Scarcity and Choice
    • Scarcity necessitates making choices .
    • Economics is the study of how people choose to use their resources in attempts to satisfy their unlimited wants.
  • 13 By Amir A.A.GADIR . Int. Capacity Building Trainer Rational Self-Interest
    • Economists believe that people choose options that give them the greatest satisfaction.
    • This means that people:
      • use all available time and information,
      • weigh the costs and benefits of all available alternatives,
      • and choose the alternative that they believe will bring them the most benefit at the lowest cost. This is the alternative that they believe will bring them the most satisfaction.
    • This does not mean that people are innately selfish. Self-interest is not greed.
  • Decision 14 By Amir A.A.GADIR . Int. Capacity Building Trainer
    • People weigh the costs and benefits of various alternatives, choosing the alternative that makes them best off.
      • This behavior is called “economic decision making” .
    • Costs and benefits are sometimes referred to as negative and positive incentives . Hence incentives matter .
    Next
  • Positive vs. Normative Economics 15 By Amir A.A.GADIR . Int. Capacity Building Trainer
    • Positive Economics
      • Focuses on “what is”.
      • Analyzes actual, measurable outcomes.
      • Does not impose value judgments, person feelings or convictions.
      • Positive economics is economics as a science.
    • Normative Economics
      • Focuses on what someone thinks “ought to be” or “should be” .
      • Makes ethical judgments—value judgments.
    Next
  • Economics 16 By Amir A.A.GADIR . Int. Capacity Building Trainer
  • Micro vs. Macro 17 By Amir A.A.GADIR . Int. Capacity Building Trainer
    • Microeconomics
      • Studies the economy at the level of individual consumers, workers, firms, goods, and markets
    • Macroeconomics
      • Studies the economy at the aggregate level, at the level of the economy as a whole.
      • Examines total consumer behavior, total employment, total production, total sales, etc.
  • 18 By Amir A.A.GADIR . Int. Capacity Building Trainer End of Lecturer One
  • Lecture 2 SUPPLY AND DEMAND I: HOW MARKETS WORK The Market Forces of Supply and Demand
  • 19 By Amir A.A.GADIR . Int. Capacity Building Trainer The Economic Problem is the Problem of 1. [Scarcity ] Here we mean the Proportional Scarcity not the Absolute Scarcity ,resources are available but due to the increasing needs for it ,thus resources become scarce for its needs. Next
  • 20 By Amir A.A.GADIR . Int. Capacity Building Trainer
      • The management of society’s resources is important because resources are scarce.
    Society and Scarce Resources: - Scarcity . . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Next
  • 21 By Amir A.A.GADIR . Int. Capacity Building Trainer 2- A Problem of Choice
    • Decisions require comparing costs and benefits of alternatives.
      • Whether to go to college or to work ?
      • Whether to study or go out on a date ?
      • Whether to buy a Laptop Computer or to buy Digital Camera ?
    The opportunity cost of an item is what you give up to obtain that item. Next
  • 22 By Amir A.A.GADIR . Int. Capacity Building Trainer
    • How people make decisions.
      • People face tradeoffs.
      • The cost of something is what you give up to get it.
      • Rational people think at the margin.
      • People respond to incentives.
  • To Solve this problem
    • To solve economical problem we should basically answer the questions face the commuinty which are :
  • 1. What we Produce ? What type of goods and services we produce is it food , clothes or tools . 23 By Amir A.A.GADIR . Int. Capacity Building Trainer 2. How we Produce ? Here we need to specify the technique we use in production of these goods. 3. To Whom we produce ? The distribution technique by which production delivered within the community and specifying consumers .
  • Lecture 2 SUPPLY AND DEMAND I: HOW MARKETS WORK Graphs and Their Meaning Price of Ice-Cream Cone 2.50 2.00 1.50 1.00 0.50 $3.00 0 1 2 3 4 5 6 7 8 9 10 11 Quantity of Ice-Cream Cones 12 1. A decrease in price ... 2. ... increases quantity of cones demanded.
  • 24 By Amir A.A.GADIR . Int. Capacity Building Trainer Graphs are employed to help students visualize and understand important economic relationship. Graphs are a means by which ecnomists express their theories . Definition Graph: What is it ?
  • 25 By Amir A.A.GADIR . Int. Capacity Building Trainer Graph Construction It's a rpresentation of relationship between to variables. Graph is consist of Horizontal line called X Axis and Vertical line called Y Axis The Original Point is the point where two lines meet usually equal Zero. Next
  • 26 By Amir A.A.GADIR . Int. Capacity Building Trainer Y Axis X Axis Original Point
  • 27 By Amir A.A.GADIR . Int. Capacity Building Trainer Graph Determining Factors Determining Factor , Represents on horizontal axis { X Axis }. Dependent Factor , Represents on vertical axis { Y Axis }. Representing the independent variable on the horizontal axis and dependent variable on the vertical axis Next
  • 28 By Amir A.A.GADIR . Int. Capacity Building Trainer Direct Relationship Example. 1. Table.1 Next E 150 200 D 120 1600 C 90 1200 B 60 800 A 30 400 Petrol Consumption per million Ltr.{ X } Total No of Cars { Y }
  • 28 By Amir A.A.GADIR . Int. Capacity Building Trainer Direct Relationship Example. 1. Table.1 400 800 1200 1600 200 Y Axis Cars Total No petrol Consumption per million Ltr. X Axis Next 30 60 90 120 150
    • Two sets of data which are positively or directly related = Graph as an upsloping line.
    31 By Amir A.A.GADIR . Int. Capacity Building Trainer
  • 28 By Amir A.A.GADIR . Int. Capacity Building Trainer Inverse Relationship Example. 2. Table.2 Next E 5 10 D 10 8 C 15 6 B 20 4 A 25 2 P Q
  • 28 By Amir A.A.GADIR . Int. Capacity Building Trainer Consier table 2 which shows the realtionship between the demand of chicken and its price per kg . Inverse Relationship we observe a negative or inverse reationship between chicken demanded quantity and its price these 2 variables change in opposite direction . Next
  • 28 By Amir A.A.GADIR . Int. Capacity Building Trainer Inverse Relationship Example. 2. Table.2 2 4 6 8 10 10 15 20 25 Y Axis Price per 100 gk Chicken Demanded Quantity. X Axis Next
    • We find that an inverse relationship will always graph as a downsloping line .
    31 By Amir A.A.GADIR . Int. Capacity Building Trainer
  • Any Questions? By Amir A.A.GADIR . Int. Capacity Building Trainer Next
  • Thank You! By Amir A.A.GADIR . Int. Capacity Building Trainer Next
  • 18 By Amir A.A.GADIR . Int. Capacity Building Trainer End of Lecturer 2
  • Lecture 4 SUPPLY AND DEMAND I: HOW MARKETS WORK The Market Forces of Supply and Demand
  • Definition Market is an institution or a mechanism which brings together Buyers " Demanders " and Sellers " Suppliers " of a particular goods and services. What is market?
  • Factors Determine Market
    • The number of Sellers and consumers
    • Number of Producers and Sellers.
    • The degree of homogeneity .
    • Types & nature of the product.
    • Link and communication between sellers and buyers.
  • Types of Markets 1. Perfect Competition: In this market there are 4 main factors : # Numerous buyers and sellers: Here the firm is a price taker so that each has no influence over price
  • # Product are the same" Homogeneous": Hers the products are similar enabling easy substituting one another. e.g. hair cutting service. # Freedom entry and exit : This market has no restriction or barriers facing a new firm to enter this market. Types of Markets
  • # Information and access to the data: The competitors must have an easy way to get the required information about how this market work and operate. Types of Markets
  • Types of Markets 2. Monopoly : One seller and seller controls market . 3. Monopolistic Competition : - Many Sellers . - Slight difference in the products .
    • Each seller may set a price for its product .
    • e.g Mobilehone network service
  • Types of Markets 4. Oligopoly : Few sellers or producers. No aggressive competition . e.g Sugar manufacturing .
  • Any Questions? By Amir A.A.GADIR . Int. Capacity Building Trainer Next
  • Thank You! By Amir A.A.GADIR . Int. Capacity Building Trainer Next
  • 18 By Amir A.A.GADIR . Int. Capacity Building Trainer End of Lecturer 3
  • Lecture 4 Supply , Demand and Equilibrium I
  • SUPPLY , DEMAND and Equilibrium I
    • Supply and demand are the two words that economists use most often.
    • Supply and demand are the forces that make market economies work.
    • Modern microeconomics is about supply , demand , and market equilibrium .
  • Demand Quantity demanded is the amount of a good that buyers are willing and able to purchase in different market price levels . What is demand?
  • Demand There are many factors which affect the demand the quantities that consumers willing to buy at a certain time and certain level of price such as: Factors Determine Demand
  • Demand 1.Nmber of Buyers 2. Consumer Income 3. Testes 4. Prices of related goods 5. Consumer expectations Factors Determine Demand
  • Demand Law of Demand The law of demand states that, other things equal, the quantity demanded of a good falls when the price of the good rises. The demand curve slopes downward because, ceteris paribus , lower prices imply a greater quantity demanded!
  • Demand Demand Schedule
    • Demand Schedule
      • The demand schedule is a table that shows the relationship between the price of the good and the quantity demanded.
  • Demand Demand Schedule 2 500 E 0 550 F 4 450 D 6 400 C 8 350 B 10 300 A Quantity / week Price/kg/Sdg Point
  • Demand Demand Curve The demand curve is a graph of the relationship between the price of a good and the quantity demanded. ( DD – Sloping top to down backward )
  • Demand Curve SDG550 500 450 400 350 300 2 1 3 4 5 6 7 8 9 10 12 11 Price of Chicken Quantity of Chicken 0
  • Demand Change in Demand and Quantity demanded The quantity which consumers are willing and able to buy rely on other factors e.g.
  • Demand Demand Curve 1.Nmber of Buyers 2. Consumer Income 3. Testes 4. Prices of related goods 5. Consumer expectations
  • Demand Change in Consumer Income If the income increased in concern the buy ability will increase for ordinary goods, the demand cure will move to right
  • Consumer Income Normal Good SDG3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Quantity of Ice-Cream 0 Increase in demand An increase in income... D 1 D 2 Demand
  • Consumer Income Inferior Good Sdg3.00 2.50 2.00 1.50 1.00 0.50 2 1 3 4 5 6 7 8 9 10 12 11 Price of Ice-Cream Quantity of Ice-Cream 0 Decrease in demand An increase in income... D 1 D 2 Demand
  • Demand
    • When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes e.g (Coca Cola v Pepsi ) .
    • When a fall in the price of one good increases the demand for another good, the two goods are called complements e.g ( Petrol v Cars ) .
    Change in Prices of Related Goods Substitutes & Complements
  • Changes in Quantity Demanded- Substitutes 0 D 1 Price of Toyota Cars. Quantity of Hyundai Cars Raises the price of Toyota Cars results in an increase in demand for Hyundai cars. 8 1000 $2000 12 D 2 4
  • Any Questions? By Amir A.A.GADIR . Int. Capacity Building Trainer Next
  • 18 By Amir A.A.GADIR . Int. Capacity Building Trainer End of Lecturer 4
  • Demand Function: Q d = f ( P , P n , I, N… ) Qd : Quantity demanded P : Price P n : Other goods price I : Consumer Income N : Number of consumers or Population
    • Demand for a good or service can be defined for an individual household , or for a group of households that make up a market .
    • Market demand is the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.
    From Household to Market Demand
  • From Household Demand to Market Demand
    • Assuming there are only two households in the market, market demand is derived as follows:
  • Lecture 5 Supply , Demand and Equilibrium I Demand
  • Supply What is supply? Supply is the number of units of a product / Service that a firm would be willing and able to offer for sale at a particular price during a given time period.
  • Supply Supply Schedule A supply schedule is a table showing how much of a product firms will supply at different prices.
  • Supply Supply Schedule Wheat flour Production 45 4 E 45 5 F 30 3 D 20 2.25 C 10 1.75 B 0 2 A Quantity / Annuel Price/ton/Sdg Point
  • The Law of Supply
    • The law of supply states that there is a positive relationship between price and quantity of a good supplied.
    • This means that supply curves typically have a positive slope.
  • The Law of Supply 0 1 2 3 4 5 6 0 10 20 30 40 50 Millions ton of Wheat produced per year Price of wheat per ton (sdg)
  • Supply Curve
    • A supply curve is a graph illustrating how much of a product a firm will supply at different prices.
    S S A D C 200 B 250 50 300 60 350 70 400 80
    • P roductivity (Improvements in machines and production processes of a good or service)
    • I nputs ( Change in the price of inputs required to produce the good or service.)
    • G overnment Actions ( Subsidies` Financial Asisst. Taxes &Regulations)
    • T echnology (Improvements in machines and production processes of a good or service)
    • O utputs ( Price changes in other products produced by the firm)
    • E xpectations (outlook of future prices and profits)
    • S ize of Industry (Number of firms in the industry)
    Determinants of Supply
  • A Change in Supply Versus a Change in Quantity Supplied
    • A change in supply is not the same as a change in quantity supplied .
    • In this example, a higher price causes higher quantity supplied , and a move along the demand curve.
    • In this example, changes in determinants of supply, other than price, cause an increase in supply , or a shift of the entire supply curve, from S A to S B .
    s B
  • From Individual Supply to Market Supply
    • The supply of a good or service can be defined for an individual firm, or for a group of firms that make up a market or an industry.
    • Market supply is the sum of all the quantities of a good or service supplied per period by all the firms selling in the market for that good or service.
  • Market Supply
    • As with market demand, market supply is the horizontal summation of individual firms’ supply curves.
  • Any Questions? By Amir A.A.GADIR . Int. Capacity Building Trainer Next
  • Thank You! By Amir A.A.GADIR . Int. Capacity Building Trainer Next
  • 18 By Amir A.A.GADIR . Int. Capacity Building Trainer End of Lecturer 5