2. Core Concepts
What is Economics?
Economics is a social science that
studies how decision-makers allocate
limited resources to satisfy unlimited
wants and needs.
This implies that there is a
fundamental dilemma we must deal
with throughout our lives. This
dilemma is usually posed as the
Economic Problem.
3. Core Concepts
The Economic Problem - how do we
get the most satisfaction from our
limited resources.
Scarcity & Choice - The fundamental
concepts behind the economic
problem is that scarcity of resources
forces people to make choices among
available alternatives.
4. Core Concepts
The decision to have one good or
service over another involves a cost. In
economics this is known as an
opportunity cost.
Opportunity cost (not a monetary cost)-
the cost of any choice that you make, is
the value of the best opportunity that
you give up or forgone in order to make
that choice.
5. Core Concepts
The concept highlights the next
best choice that must be made by
measuring the cost of what is
chosen to the alternative that
could be made.
7. The Production Possibility
Boundary
shows a combination of two goods
Private sector goods on vertical axis
Public sector goods on horizontal axis
separates attainable goods from unattainable
goods
Point c represents attainable goods but either
an inefficient / under-utilisation of resources
Point a and b represents attainable goods
and the efficient use of resources
Point d represent unattainable resources by
the economy
8. The Production Possibility
Boundary
The boundary is negatively slope
because in a fully employed economy,
more of one good can be produced only
if resources are freed up by producing
less of the other good
Moving from Point a to b implies that
inorder to gain an additional unit of
private sector goods (Co=> C1) in return
you must be willing to reduce the
production of public sector goods
(Go=>G1).
10. Positive Economics
Positive economics are about
statements that are testable i.e. what
is, what was, what will be.
These statements appeal to facts and
can be tested for accuracy by
collecting and analysing the data
although it may not be true.
11. Normative Economics
Normative economics are about
statements that express a value
judgement or an opinion about what is
desirable, what ought to be or what
should be.
12. Questions
Is the following positive statements or normative
statements?
• Rich people are healthier than poor people?
• Growth in Barbados is slower than growth in
Bermuda?
The Caribbean should pursue a free trade
agreement with the USA?
Income taxes are hurting the poor and should be
eliminated?
13. Market Economies
Three pure economy types
A Traditional economic system
primarily on tradition, custom and
habit.
A Command economic system
decisions of production are
determined by some central authority.
Free market system
decisions are made by buyers and
sellers acting through unhindered
14. Market Economies
Mixed economy
contain elements of all 3 types of the
aforementioned economies
In the long run, the aforementioned
economies individually fail to deliver
rising living standards because they
use resources less efficiently.
