This document discusses key concepts in economics including: 1. Economics analyzes the production, distribution, and consumption of goods and services. Microeconomics focuses on individual agents like consumers and firms, while macroeconomics looks at whole economies. 2. Scarcity means human wants exceed limited resources, so not all goals can be achieved. Opportunity cost is the next best alternative given up when making a choice. 3. The basic economic problems are what to produce, how to produce it, and who gets it. Market and planned economies answer these differently based on private vs public decision making.

1. Ing. Pablo San Andres.

2. Economics.
Economics is the social science that analyzes the production, distribution,
and consumption of goods and services.

3. Microeconomics
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. It is
concerned with the interaction between individual buyers and
sellers and the factors that influence the choices made by
buyers and sellers.
It is focused on the actions
of individual agents, such
as firms and consumers,
and how their behavior
determines prices and
quantities in specific
markets.

4. A fall in the supply of strawberries perhaps due
to a poor harvest, has caused and increase in
price and reduced the quantity demanded

5. Macroeconomics
Macroeconomics is concerned primarily with
the forecasting of national income, through
the analysis of major economic factors:
• Employment/unemployment
• Gross Domestic Product (GDP)
• Balance of payment position
• Prices (Deflation or inflation)

6.  It studies the behavior of the whole (aggregate)
economies or economic systems instead of the
behavior of individuals, individual firms or
markets (which is the domain of Microeconomics)
 Often with the aim of studying the effect of
government policy on these factors

7. Positive economies
It is the branch of economics that concerns the description and
explanation of economic phenomena.
For example:
The price of milk has risen from $3 a gallon to $5 a gallon in
the past five years.
It can be proven true or false by comparison against real-world
data. In this case, the statement focuses on facts.

8. Normative economics
It is the part of economics that expresses value judgments
about economic fairness or what the economy ought to
be like or what goals of public policy ought to be.
For example:
The price of milk should be $6 a gallon to give dairy
farmers a higher living standard and to save the family
farm.
This specific statement makes the judgment that farmers
need a higher living standard and that family farms
need to be saved

9. They are resources that must be used to produce
a good or to provide a service.
Land: Natural resources found on the planet that
are available to production.

10. Labour: Physical and mental effort of people
used in the production of a good or service

11. Capital : Non-natural (manufactured) resources
that are used in the creation and production
of other products

12. Investment in Human Capital
Economic growth

13. Physical capital

14. Investment capital

15. Enterprise: It’s also known as entrepreneurship,
because it refers to the management, organization
and planning of the other three factors of
production

16. It is what you give up in order to have something
else.

19. The opportunity cost walking to school= 20 minutes
The opportunity cost taking a taxi= What I can do
with the money paid for the service and health
benefits.

20. Exercise
By taking an airplane Larry can travel from Denver to
Houston in one hour. The same trip takes 5 hours by bus.
Airfare is $90 and the bus fare is $30.
Larry, when he is not traveling, can work and earn
$30/hour.
 Answer the following questions:
1) What is the opportunity cost (OC) for Larry of traveling by
bus?
2) What is the OC for Larry of traveling by plane?
3) Which is the cheaper mode of travel for Larry?
4) How would the answers be different for another person
Moe (who can work and earn $6/hour when he is not
traveling)?

21. Solution:
1) OC = (Total cost) + (Bus Fare) + (Time Cost)
= $30 + (5 hours) ($30/hour)
= $30 + $150 = $180
2) OC = $90 + (1 hour)($30) = $120
3) Plane is cheaper for Larry
4) For Moe,
OC (bus) = $30 + (5 hours)($6/hour) = $60
OC (plane) = $90 + (1 hour) ($6/hour) = $96
Therefore, bus is cheaper for Moe.

22. People with high time value (e.g. busy
executives) are more likely to travel by plane
than by bus; whereas, people with low time
value (seniors, students on vacation) are more
likely to travel by bus.

23. Scarcity
We use different type of resources to satisfy our
wants:
Resources
Human resources:
Natural resources labour
air, water, land and
oil
Man made resources:
machines

24.  It is the fundamental economic problem of having
humans who have wants and needs in a world of
limited resources.
 It states that society has insufficient productive
resources to fulfill all human wants and needs
 Scarcity implies that not all of society's goals can
be pursued at the same time.
WANTS ARE MORE THAN
WHAT IS AVAILABLE
http://www.socialstudiesforkids.com/article
s/economics/scarcityandchoices1.htm

25. If a good or service has an opportunity cost then
it must be relatively scarce in supply, so it will
have a price and be classified as an “Economic
good”, human effort is required to obtain it.

26. Free good
 A good that is not scarce.
 A free good is available in as great a quantity
as desired with zero opportunity cost to
society.
 Abundant supply, and needs no conscious
effort to obtain it

27. In case
• On a magazine, there • The coupons are not a
is a list of ice-cream free good. The quantity
coupon. The coupon of coupons are scare. It
are free of charge. is costly to produce and
• use. So the coupons
• Does mean that the are
coupon are free • not a free good.
goods?

28. Depending on how we use goods, goods
can classified into two types.
Consumer goods Capital goods
Capital goods are the
Consumer goods are the
goods produced for
goods produced for
production of other
direct consumption.
goods.

29. The basic economic problem
As resources are scare, we need to face three
basic economic problems.
1.- What will be produced?
Question is concerned with what products and in
what quantities they are to be produced.

30. 2.- How will it be produced?
Question is concerned with the method of production.
Should crops be grown with high usage of fertilizer or
organically?. There are different ways of producing
things. There are different combination of resources

31. 3.- For whom will it be produced?
How those goods or services are distributed?

32. Market economy & Planned economy
Planned
• Private ownership economy
of property is
widespread.
• Private
• people are free to ownership of
make production property is
and consumption limited.
decisions.
• Government
Market makes
economy production
decisions.

33. How they solve problems
The what question:
Market prices serve as
The for whom question: signals in deciding what
People’s ability to pay goods to produce and in
determines the quantity what quantities.
of goods they can get. M
a
eco rk
no et
my
The how question:
Producers are interested in
finding the lowest cost method
of production; factor prices
guide them in their choice of
production method.

35.  These essential questions must be answered in
every economy to determine the fundamental
goals of the society. How each society handles
these questions is determined by the role of
government and the people in the decision-
making process. Each group of people makes
decisions or fails to make decisions that control
the flow of money, goods, and services. The
control of these decisions determines the type of
economy present

36.  How resources are allocated is the process of
choosing which needs will be satisfied and how
much of the limited resources will be used to
satisfy those needs. Allocation by definition
indicates choice.
 Economics is the social science that deals with
how society allocates its scarce resources
among the unlimited wants and needs of
individuals that make up that society.
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