This document provides an introduction to economics. It defines key economic concepts like scarcity, resources, production, consumption, and capital formation. It explains that economics studies how societies allocate their limited resources. Microeconomics focuses on individual units while macroeconomics looks at the overall economy. The central problems that economies face are what and how to produce goods and services, and how to distribute them. Production possibility frontiers are used to show production tradeoffs and opportunity costs between two goods with limited resources. Marginal rates of transformation represent the tradeoff between goods on the production possibilities curve.

1. ALLPPT.com _ Free PowerPoint Templates, Diagrams and Charts
CHAPTER: 1
INTRODUCTION
CS. SOHIL GAJJAR

2. ECONOMY
It is a system which provides people, the means to work and
earn a living.

3. Parts of
Economy ???

4. VITAL FUNCTION OF AN ECONOMY
ECONOMY
PRODUCTION
CONSUMPTION
CAPITAL
FORMATION

5. WHY STUDY ECONOMICS?
The main reason for study of economics can be simplified to a
single word - SCARCITY

6. SCARCITY
Scarcity refers to the limitation of supply in relation to demand
for a commodity.
Economics is concerned with selection of resources under
conditions of scarcity

7. RESOURCES
FACTORS OF PRODUCTION - FOP

8. ECONOMIZING OF RESOURCES
Refers to making optimum use of the available resources.

9. ECONOMIC PROBLEM
It is a problem of CHOICE involving satisfaction of unlimited
wants out of limited resources having alternative uses.

10. REASONS FOR ECONOMIC PROBLEM
1. SCARCITY OF RESOURCES: Resources are limited in
relation to their demand and economy cannot produce all
what people want.

11. REASONS FOR ECONOMIC PROBLEM
2. UNLIMITED HUMAN WANTS: Human wants are never
ending, i.e. they can never be fully satisfied. As soon as one
want is satisfied, another new want emerges.

12. REASONS FOR ECONOMIC PROBLEM
3. ALTERNATIVE USES: Resources are not only scarce, but
they can also be put to various uses. It makes choice among
resources more important.

13. ECONOMICS
Economics is a social science which studies the way a society
chooses to use its limited resources, which have alternative
uses, to produce goods and services and to distribute them
among different groups of people.

14. MICRO AND MACRO ECONOMICS
MICRO MACRO

15. Basis Microeconomics Macroeconomics
Meaning Microeconomics deals with the
behaviour of individual
economic units.
Macroeconomics is the study of
the economy as a whole.
Tools Demand and Supply Aggregate Demand and Aggregate
Supply
Objective To determine the price of a
commodity or factors of
production.
To determine the income and
employment level of the economy.
Other
Name
It is also known as ‘Price theor
y’.
It is also known as ‘Income and
Employment Theory’
Example Individual income, individual
output.
National Income, national output.
Aggregation It involves limited degree of
aggregation.
It involves the highest degree of
aggregation.

16. POSITIVE AND NORMATIVE
ECONOMICS

17. DISTINGUISH BETWEEN
Differences Positive Economics Normative Economics
Meaning It deals with the things “
as they are”
It deals with the things
“as they should be”
Basis Based upon real facts Based upon individual
opinions
Verification It can be verified with
actual data
It cannot be verified
Nature Pure and neutral between
ends
Suggestive & optimum in
nature
Purpose It aims to make real
description of an economic
activity.
It aims to determine
the ideals.
Value Judgments It does not give any value
judgments.
It gives value
judgements.

18. CENTRAL PROBLEMS OF AN ECONOMY
Production, distribution and disposition of goods and services
are the basic economic activities of life. In the course of these
activities, every society has to face scarcity of resources.
Because of this scarcity, every society has to decide how to
allocate the scarce resources. It leads to following Central
Problems of an Economy.

19. WHAT TO PRODUCE
This problem involves selection of goods and services to be
produced and the quantity to be produced of each selected
commodity
Guiding Principle: Allocate the resources in such a manner which
gives maximum aggregate satisfaction.

20. HOW TO PRODUCE
This problems refers to selection of technique to be used for
production of goods and services . Generally, techniques are
classified as LIT & CIT.
Guiding Principle: Combine FOP in such a manner so that
maximum output is produced at minimum cost, using least
possible scarce resources.

21. FOR WHOM TO PRODUCE
This problem refers to selection of category of people who will
ultimately consume the goods, i.e. Whether to produce goods for
more poor and less rich or more rich and less poor.
Guiding Principle: Ensure that urgent wants of each productive
factor are fulfilled to the maximum possible event.

22. OPPORTUNITY COST
It is the cost of next best alternative foregone.

23. PRODUCTION POSSIBILITY FRONTIER
It refers to a graphical representation of possible combination of
two goods that can be produced with given resources and
technology
1. Resources are fixed
2. They can be transferred
3. Only two goods can be produced.
4. Resources are fully and efficiently utiliised
5. Resources are not equally efficient in production of all
products
6. Technology remains constant

24. FIGURE

25. SCHEDULE
Production
Possibilities
[OR Combination]
Guns Butter MRT
A 21 0 -
B 20 1 1:1
C 18 2 2:1
D 15 3 3:1
E 11 4 4:1
F 6 5 5:1
G 0 6 6:1

26. Explanation
When points A, B, C, D, E, F, & G are joined we get a
curve AG, known as ‘Production Possibility Frontier.’
AG curve shows the maximum limit of production of
guns and butter.
Every point on PPC [like A, B, C, D, E, F& G] in figure
indicates full employment and efficient use of
resources.

27. MARGINAL OPPORTUNITY COST
MOC refers to the number of units of a commodity
sacrificed to gain one additional unit of another
commodity. In case of PPC, MOC is always
increasing.
Reason:-
Increasing MOC operates because productivity and
efficiency of factors of production decrease as they
are shifted from one use to another.

28. MARGINAL RATE OF TRANSFORMATION
MRT is the ratio of number of units of a commodity
sacrificed to gain an additional unit of another
commodity.
MRT =  Units Sacrificed
 Units Gained
MRT increased because it is assumed that no
resources is equally efficient in production of all
goods.

29. CHARACTERISTICS OF PPF
1. PPF SLOPES DOWNWARDS: More of one goods can be
produced by only by taking resources away from the
production of another good.
2. PPF is CONCAVE SHAPE: Because of increasing MRT. MRT
increases because it is assumed that no resource is
equally efficient in production of all goods.

30. ATTAINABLE AND UNATTAINABLE COMBINATIONS

31. CHANGE IN PPC
1. SHIFT IN PPC: When there is change in productive
capacity with respect of both the goods.
2. ROTATION OF PPC: When there is change in productive
capacity with respect to only one good.

32. CS. SOHIL GAJJAR
COMMITTED TO EXCELLENCE
PRESENTATION BY:

33. For any quries or topic suggestion
E-mail: sohilgajjar77@gmail.com
THINK ECONOMICS
THINK SOHIL SIR