Introduction To Economics


Published on

A brief Introduction To Economics...

Published in: Economy & Finance
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Introduction To Economics

  1. 1. Yousef Hani
  2. 2.  Economics has various definitions, such as; The art of handling scarce resources The study of choice How society chooses to allocate its scarce resources among competing demands to best satisfy human wants
  3. 3.  Microeconomics: is generally the study of individuals and business decisions regarding the allocation of resources, and prices of goods and services. Macroeconomics: looks at a higher level (country and government decisions), studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies.
  4. 4.  The Economic problem is summed up in 4 points; Unlimited Wants Scarce Resources – Land, Labour, Capital Resource Use Choices
  5. 5.  It simply means that people are never totally satisfied with the quantity and variety of goods and services they consume. It means that people never get enough, that theres always something else that they would want or need.
  6. 6.  It states that society has insufficient productive resources to fulfill all human wants and needs. Alternatively, scarcity implies that not all of societys goals can be pursued at the same time; tradeoffs are made of one good against others.
  7. 7.  Since we established already that resources are scarce, so the use of these scarce resources becomes the most important aspect of all. Proper and efficient management of these scarce resources is the key to success and prosperity.
  8. 8.  Choices are inevitable because human wants and needs are unlimited but the resources available to meet them are finite. Examples:  What is to be produced?  How is it to be produced?  For whom will it be produced?
  9. 9.  Economists define Efficiency as the absence of Waste. An efficient economy utilizes all of its available resources and produces the maximum amount of output that its technology permits.
  10. 10. o For many reasons, such as;  Unemployment: which is the most important waste of all, waste of human resources.  Assigning inputs to the wrong task: Like using a dry land to grow rice and a rainy land to grow sesame!  Poor Management: Failure in managing the decision making process leading to waste in resources.
  11. 11.  Opportunity cost is what a person sacrifices when they choose an option over another, the cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.o Example: The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career, thanks to your education, to offset the lost wages.
  12. 12.  Inall cases, a choice between two options must be made. It would be an easy decision if you knew the end outcome; however, the risk that you could achieve greater "benefits" (be they monetary or otherwise) with another option is the opportunity cost.
  13. 13.  What’s Comparative Advantage: A situation in which a country, individual, company or even region can produce a good at a lower opportunity cost than a competitor.
  14. 14.  Economists believe that if all people and all countries used their comparative advantages to specialize in what they do best it will foster efficiency in more profound sense. The reason is that; people, businesses & nations have different abilities, some can repair automobiles, whereas others are wizards with numbers, some are handy with computers, and other can cook. And Economy will be most efficient if people specialize in doing what they do best and then trade with one another.
  15. 15.  One of the problems with comparative advantage is that it assumes that there are no barriers to trade/protectionist measures or any transport costs. In reality, these two would add to or take away from the cost of trading, therefore making a weaker/stronger case for trade. The model of comparative advantage also assumes that there are only two countries involved, and they make only two goods, which is, of course, not the case. Similarly, the theory assumes that countries can switch production from one thing to another without any sort of cost or time delay.
  16. 16.  Another criticism of the theory is that while specialization in some instances is good, it can mean that an economy becomes dependent on trade, and isnt self-sufficient. This may not be a problem, but if tastes change or if the market takes a turn for the worse for the countrys main export, then the entire welfare of the country could be compromised. The final criticism of the theory is that it leaves out the fact that international trade and international politics are strongly linked. (EX: USA can’t import from IRAN even if IRAN has the best and cheapest products ever).
  17. 17. o Demand and supply is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.  Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.
  18. 18.  Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand. The relationship between demand and supply underlie the forces behind the allocation of resources. In market economy theories, demand and supply theory will allocate resources in the most efficient way possible. Through the law of demand and the law of supply.
  19. 19.  The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.
  20. 20.  Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.
  21. 21.  When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding.
  22. 22.  Market structure is best defined as the organizational and other characteristics of a market. We focus on those characteristics which affect the nature of competition and pricing
  23. 23.  Monopoly Perfect Competition Oligopoly Monopolistic competition
  24. 24.  A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products. According to a strict academic definition, a monopoly is a market containing a single firm. Antimonopoly regulation protects free markets from being dominated by a single entity.
  25. 25.  Only one single seller in the market. There is no competition. There are many buyers in the market. The firm enjoys abnormal profits. The seller controls the prices. Consumers don’t have perfect information. There are barriers making it nearly impossible to entre the market. These barriers may be natural or artificial. The product does not have close substitutes.
  26. 26.  Monopoly avoids duplication and hence wastage of resources. A monopoly enjoys economics of scale as it is the only supplier of product or service in the market. The benefits can be passed on to the consumers. Due to the fact that monopolies make lot of profits, it can be used for research and development and to maintain their status as a monopoly. Monopolies may use price discrimination which benefits the economically weaker sections of the society. For example, Indian railways provide discounts to students travelling through its network. Monopolies can afford to invest in latest technology and machinery in order to be efficient and to avoid competition.
  27. 27.  Poor level of service. No consumer sovereignty. Consumers may be charged high prices for Low quality of goods and services. Lack of competition may lead to low quality and out dated goods and services.
  28. 28.  Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which other market structures are compared. The industry that best reflects perfect competition in real life is the agricultural industry. Sometimes referred to as "pure competition".
  29. 29.  All firms sell an identical product. Infinite buyers and sellers. All firms have a relatively small market share with no power to control the price of a product. Lowest possible cost. Perfect information. The industry is characterized by freedom of entry and exit.
  30. 30.  A situation in which a particular market is controlled by a small group of firms. An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market.
  31. 31.  Few number of firms. Ability to set price. Barriers to entry are high. Long run abnormal profits. Interdependence. Non-Price Competition
  32. 32.  Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes. Monopolistic competition differs from perfect competition in that production does not take place at the lowest possible cost.
  33. 33.  All firms produce similar but not perfectly substitutable products. Large number of firms. All firms have some market power. Independent decision making. Free entry and exit in the long run.
  34. 34. Yousef Hani