The document provides an overview of basic economic concepts. It defines economics as the study of how scarce resources are used to satisfy unlimited wants. Key concepts discussed include: - Microeconomics focuses on individual decision-making units like households and firms, while macroeconomics looks at aggregate outcomes like growth, inflation and unemployment. - Positive statements are factual, while normative statements make value judgments. - Scarcity, choice, and opportunity cost are core concepts, as scarcity requires making choices that incur a cost of alternatives forgone. - Efficiency occurs when maximum satisfaction is achieved with minimum wasted effort or resources.

1. Economics: Basic
Concepts

2. Key Points
• Introduction to Economics
• Basic Economic Concepts
• Micro Vs Macro Economics
• Positive Vs Normative
• Production Possibility Analysis
• Opportunity Cost
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3. Meaning of the word
‘Economics’
• The word ‘Economics’ originates from a
Greek word ‘Oikonomikos’
• This Greek word has two parts: – ‘Oikos’
meaning ‘Home’ – ‘Nomos’ meaning
‘Management’
• Hence, Economics means ‘Home
Management’
• Adam Smith – 1776 – Wealth of Nation 3

4. What is Economics in General?
• Economics---Social science concerned
with the efficient use of Scarce resources
to achieve maximum satisfaction of
economic wants
• The branch of knowledge concerned with
the production, consumption, and
(distribution) transfer of wealth.

5. Micro vs. Macro
MICROeconomics-
Microeconomics is the study of individuals,
households and firms' behavior in decision
making and allocation of resources.
MACROeconomics-
Study of the large economy as a whole or in its
basic subdivisions (National Economic Growth,
Government Spending, Inflation, Unemployment,
etc.).
It study the aggregate units.

6. Positive vs. Normative
Positive Statements- Based on facts. Avoids value
judgments (what is?, What was?).
Normative Statements- Includes value judgments
(what ought to be? What should be?).
How is Economics used?
• Economists use the scientific method to make
generalizations and abstractions to develop
theories. This is called theoretical economics.
• These theories are then applied to fix problems
or meet economic goals. This is called policy
economics.

7. Basic Concepts
• Scarcity
• Choice
• Opportunity Cost
• Efficiency
• Basic Economics Questions (Three problems
of Economic Organization)
• Market, Command and Mixed System
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8. 8
•A good definition of economics
• Study of choice under conditions of
scarcity
•Scarcity
• Situation in which the amount of
something available is insufficient to
satisfy the desire for it

9. Scarcity-Choice-Opportunity
Cost
•Economics is the science of scarcity.
•Scarcity is the condition in which our
wants are greater than our limited
resources.
• Since we are unable to have everything
we desire, we must make choices on how
we will use our resources .
• In economics we will study the choices of
individuals, firms, and
governments(Agents of Economy)
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10. Continue…….
• Choosing more of one thing means having less of
something else.
• The opportunity cost of any action is the best
alternative forgone.
• You have a limited amount of time. If you take a
part-time job, each hour on the job means one
less hour for study or play.
• A city has a limited amount of land. If the city
uses an acre of land for a park, it has one less
acre for housing, retailers, or industry. 10

11. Efficiency
• Efficiency is defined as the ability to produce
something with a minimum amount of effort.
• Economic efficiency is a relative term; an
economy is more efficient when it produces
more goods and services for society than
another by using the same or lower input.
• productive efficiency
• Technical efficiency
• Allocative efficiency 11

12. • Productive efficiency is achieved when a
producer uses the least amount of resources to
produce goods or services relative to others.
• Technical efficiency describes production that
has the lowest possible opportunity cost.
Material and labor resources are not wasted in
the production of goods or services in technically
efficient production.
• Allocative Effieciency occurs when goods and
services are distributed according to consumer
preferences. An economy could be productively
efficient but produce goods people don’t need
this would be allocative inefficient
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13. • Pareto efficiency, or Pareto optimality, is an economic
state where resources cannot be reallocated to make
one individual better off without making at least one
individual worse off.
• A Pareto improvement occurs when a change in
allocation harms no one and helps at least one person,
given an initial allocation of goods for a set of persons
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14. Elements of Economy
• Production
• Distribution
• Consumption
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15. 1. Production
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16. Resources
• Natural Resources
• Financial Resources
• Human Resource
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17. Natural Resources
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Natural resources are resources that exist without any actions
of humankind.

18. Financial Resources
• The money available to a business for
spending in the form of cash, liquid securities
and credit lines.
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19. Human Resources
• Human resources is used to describe both the
people who work for a company or
organization and the department responsible
for managing resources related to employees.
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20. The Factors of Production
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21. Basic Economic Questions
• What to Produce?
• How to produce?
• For Whom to Produce?
• Economics Systems
• Market System
• Command System
• Mixed System
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22. • In a market economy, consumers and businesses
decide what they want to produce and purchase
in the marketplace. (Production and
consumption decision)
• Producers decide what to produce given the
demand they see in the marketplace in terms of
their sales and the prices they get for their goods
and services.
• A system of profits and losses that determines
the answers of ‘what’ , ‘how’, and ‘for whom,.
• Government has little role in different economic
decisions i.e called laissez-faire economy .
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23. • In a command economy, also known as a planned
economy, the government largely determines what is
produced and in what amounts.
• Government makes all important decisions about
production and distribution.
• It directs producers to make and deliver goods and
services in specified amounts. In practice, command
economies are associated with socialism and
communism.
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24. • In a mixed economy both market forces
and government decisions determine
which goods and services are produced
and how they are distributed.
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25. Economic Systems
• Market System
• Command System
• Mixed System
In Market , decisions about ‘ what, how and for whom’ are mainly
taken by businesses and consumers .
But we cant’ ignore the role of Govt. in any system. In real world
no economy actually functioning smoothly, without govt. role.
• In modern economics , Governments take on many tasks in
response to the flaws in the market mechanism.
• The military, the police, and the national weather service are
typical areas of government activity.
• Socially useful ventures such as space exploration and scientific
research benefit from government
funding.
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26. Functions of Government
• Govt. have three main functions in a market economy.
1. Governments increase efficiency by promoting
competition, curbing externalities like pollution, and
providing public goods.
2. Governments promote equity by using tax and
expenditure programs to redistribute income toward
particular groups.
3. Governments foster macroeconomic stability and
growth—reducing unemployment and inflation while
encouraging economic growth—through fiscal and
monetary policy. 26

27. 1. Efficiency
• When markets will utilize scarce resources efficiently , the
economy is on its production possibility frontier.
How efficiency will achieved ?
a. Promote Competition
Perfect Competition Vs Monopoly
b. Handling Externalities
- Externalities are some spill over effects that occurs , when
firms or people impose costs or benefits on others outside the
marketplace.
i. Positive Externalities
ii. Negative Externalities
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28. 28
• Positive Externalities
A positive externality exists if the production and
consumption of a good or service benefits a third party not
directly involved in the market transaction. For example,
education directly benefits the individual and also provides
benefits to society as a whole
• Negative Externalities
Negative externalities occur when the consumption or
production of a good causes a harmful effect to a third party.
• Govt. are generally more concerned with negative
externalities.
• Government regulations are designed to control
externalities like air and water pollution, damage from strip
mining, hazardous wastes, unsafe drugs and foods, and
radioactive materials

29. Public Goods
• Public goods are commodities which can be enjoyed by
everyone and from which no one can be excluded. The classic
example of a public good is national defense.
• Provision of public goods is generally insufficient , the govt.
must step into the encourage the production of public goods.
• Taxes. The government must find the revenues to pay for its
public goods and for its income-redistribution programs. Such
revenues come from taxes levied on personal and corporate
incomes, on wages, on sales of consumer goods, and on other
items.
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30. 2. Promote Equity
• Equity is concerned with how resources are distributed
throughout society.
• Equity means fairness or evenness, and achieving it is
considered to be an economic objective, and relates to how
fairly income and opportunity are distributed.
• Markets do not necessarily produce a fair distribution of
income. A market economy may produce inequalities in
income and consumption that are not acceptable to the
electorate.
• Government use some tools to reduce income inequalities .
• First, progressive taxation,
• Second, transfer payments
• And Subsidy
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31. 31
Progressive Tax system ---- taxing large incomes at a higher
rate than small incomes. It might impose heavy taxes on
wealth or on large inheritances to break the chain of
privilege.
Transfer payments, which are money payments to people. Such
transfers today include aid for the elderly, blind, and disabled and
for those with dependent children, as well as unemployment
insurance for the jobless.
Subsidy----governments sometimes subsidize consumption of
low-income groups by providing food stamps, subsidized medical
care, and low-cost housing .

32. MACROECONOMIC GROWTH
AND STABILITY
• Economic growth is an increase in the production
of economic goods and services, compared from one period of
time to another.
• Macroeconomic policies for stabilization and economic growth
include fiscal policies (of taxing and spending) along with
monetary policies (which affect interest rates and credit
conditions).
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34. Question ?
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