The document outlines the proposed course outline for an introductory economics course. It covers the following key topics in 3 sentences or less: - What is economics, including human nature, scarcity of resources, and decision making. - Different economic systems like markets and centrally planned economies. - The evolution of markets through specialization, comparative advantage, invention of money, and information technology enabling trade and price signals to guide resource allocation.

1. Principles of Economics
An Intuitive Overview

2. Principles of Economics
Proposed Course Outline
• What is economics.
– Human nature, resource scarcity.
– Decision making, trade-off/ opportunity cost, marginal comparisons.
• Economic systems.
– Compare and contrast and allow choice.
• Evolution of the market.
– Individual decision making, comparative advantage and collective gain in
exchange, evolution of money, role of price in decision making.
• Functioning of the market system.
– Consumer and producer decision making.
– Perfectly competitive markets and long-run equilibrium.
• Strength and weaknesses of the market system.
– Rectifying market weaknesses.
• Government and macro economy.
• Development.

3. What is Economics?

4. What do Economist do?

5. What do human beings aspire in life?
• Happiness.

6. What makes us happy?
• Fulfilling our desires.
• What are our desires?
– Desires are pleasurable stimulants.
– Desires are Physical and Meta-physical.
– Physical desires are received by 5 senses:
• Sight, sounds, smell, taste and touch.
– Meta-physical desires are received by6th sense:
• Love, respect, intellectual curiosity, spirituality.
• All desires originate in the mind.
• Sources of desires are outside of mind.

7. What is an eternal and universal fact/truth
of human aspiration towards happiness?
• Happiness can not be absolutely fulfilled.
– Satisfaction is insatiable.

8. Why can not happiness be absolutely
fulfilled?
• Because the physical sources of
happiness are limited relative to
human nature of in-satiation of
desires.
• Limitedness/ scarcity leads to
opportunity cost/ trade offs.

9. If sources of happiness are limited
how could we make ourselves happy?
• Making decisions/ choices on what best makes
us happy.

10. What is decision making?
• A cognitive process (could be supported by
technology now).
– Deciding on an objective/s.
– Collecting and processing information in relation
to the objective.
– Comparing alternatives.
– Selecting the best alternative to achieve the
objective.

11. Module 2:
Causes of Undernutrition:
The World Food Problem
What is Economics?
Economics is:
• a scientific study,
• of human/social behavior,
• on how decisions are taken,
• on the allocation of scarce resources,
• for production and consumption,
• to satiate insatiable human desires.

12. Module 2:
Causes of Undernutrition:
The World Food Problem
Economics is a Science
Economics is a science as it has the following
characteristics of science.
– Search for truth
– Follows the scientific method
– Based on evidence of observables
– Findings are replicable
– Findings could be falsified or strengthened
– Findings enables prediction

13. Module 2:
Causes of Undernutrition:
The World Food Problem
Economics is a
Social Science
• Economics is a social science as the main
focus of analysis is human behavior.
• The degree of scientific character of a social
science is less than that of a pure science,
such as physics or chemistry.
Knowledge
Scientific Non-scientific
Physics, Chemistry,
Zoology, Botany
Economics, Sociology,
Psychology
History, Literature, Myths

14. Module 2:
Causes of Undernutrition:
The World Food Problem
Human Beings Bio-Physical Resources
Desires
Material
Non-Material
Food
Shelter
Clothing
Luxuries
Labor
Land
Capital
Technology
Satisfaction Insatiable
Maximize Satisfaction
Resources Scarce
Decisions on Allocation of Resources
Production
Economics: Decision Science

15. What do Economist do?
Facilitate decisionMaking on resource
allocation to best satisfy human beings.

16. Module 2:
Causes of Undernutrition:
The World Food Problem
Different Economic Systems
• All economic systems aspire to solve the basic
economic problem.
• Market : Property/ resources are owned by
individuals and individuals take economic
decisions.
• Centrally Planned: Property owned by the
state and state takes economic decisions.
• Mixed economies: Mix of market and
centrally planned characteristics.

17. Module 2:
Causes of Undernutrition:
The World Food Problem
Evolution of the Market: Madolduwa
• Consider Upali going to Madolduwa and
getting stranded , thirsty and hungry
(desire) sees coconut palms.
• He plucks a kurumba very easily (low
effort) and consumes it and get a very
high satisfaction.
• He plucks the second kurumba with more
effort (taller tree) and consumes it and
gets satisfaction but less than the
satisfaction from the first date.
• Continue plucking and consuming
kurumba … the effort and satisfaction is
given in figure.
• The effort is the cost (supply) and the
satisfaction is the demand.
• Demand and supply is at equilibrium at 3
Kurumbas. Reason out.
• In a market the satisfaction and cost are
quantified monetarily (price).
Plucking Dates
0
200
400
600
800
1000
1200
1 2 3 4
Kg. of Dates/ Day
Additionalsatisfactionor
Additionaleffort
Additional satisfaction
Additional effort

18. Evolution of the Market: Specialization

19. Evolution of the Market:
Comparative Advantage and Exchange

20. Agricultural Finance: Module 2 Money
Market
20
Evolution of the Market: Money
• Our ancestors did not use money!
• Barter system of exchange.
• Barter system is an inefficient form of
exchange due to difficulties in:
– Double coincidence wants
– Fixing a rate of exchange (every
commodity must have a value in
relation to all other commodities).
– Etc,…
• Money a socially acceptable medium
of exchange improved efficiency of
exchange.

21. Market Evolution
• Market is an exchange system of wants of
producers and consumers.
• Market evolution has been influenced by:
– Product specialization
– Comparative advantage
– Invention of money
– Information technology

22. Model of the Market Economic
System: Concept of Equilibrium

23. Module 2:
Causes of Undernutrition:
The World Food Problem
Definition of the Market
• A social institution
(mechanism) which
coordinates consumer wishes
of consumption (demand) and
producer abilities of
production (supply).
– The coordination is facilitated
by price.
• At equilibrium price both
consumer and producer are
simultaneously satisfied.
• At equilibrium the sum of
consumer and producer
surplus is maximized.
• Price is information that
facilitates decision making
among consumers and
producers, thus resource
allocation
The Market for Dates
0
200
400
600
800
1000
1200
1 2 3 4
Kg. of Dates/ Day
Price(Baisa)
Demand Supply
Equilibrium Price and Quantity

24. Market Maximizes
Consumer and Producer Surplus

25. AGEC 2003 1 Module: Introduction 25
Organization
of a Course on Market Economics
The Market for
Hamburgers
0
200
400
600
800
1000
1200
1 2 3 4
No of Hamburgers/ Day
Price(Baisa)
Demand Supply
Consumer Behavior Theory Producer Behavior Theory
Ordinal Utility Cardinal Utility Production Theory Cost Theory
Markets
Perfect Competition Monopolistic Competition Oligopoly Monopoly
Short run Equilibrium Long run Equilibrium
Market Failure and
Government

26. AGEC 2003 2 Module Consumer Theory
Part 1
26
Principles of Decision Making
• Decisions are based on
marginal (benefit or cost)
and not total.
• Decisions are based on
considering trade-offs
between marginal benefits
(MB) and marginal costs
(MC).
• Optimal (Equilibrium)
decision
– MB = MC
MB MC
Trade-offs
Equilibrium
MB = MC

27. What is common between
consumer and producer?
Production function of Tomato with
Fertilizer
0
20
40
60
80
100
120
140
1 3 5 7 9 11 13 15 17 19 21 23
X (Fertilizer (Kg/ 1000 Sq. M))
Y(Tomato(Kg))
Total Product
0
20
40
60
80
100
120
140
1 3 5 7 9 11 13 15 17 19 21 23
Y(TotalUtility)
X (Tomatoes (Kg/ day/ person))
Utility Function of Tomato

28. What is common between consumer and
producer decision making?
Marginal Benefit = Marginal Cost
0
10
20
30
40
50
60
70
80
90
100
110
1 2 3 4 5 6 7 8 9 10 11 12
No of burgers
Utility(Baisa)
Price
Marginal
Utility
P = MU
0
2
4
6
8
10
12
14
16
0 5 10 15
OutputY
OR
MC
PriceofY
-80
-60
-40
-20
0
20
40
60
80
100
120
1234567891011121314151617181920212223
OR
Input Level
MVP = PX
MVP = PX

29. Mathematics of Economics
• Why mathematics?
– Language: ABC
• Solving for Equilibrium
– Marginal Benefit = Marginal Cost

30. EIA Workshop CESAR SQU 13-16 June
2010
30
Functioning of the Market: Price Determination

31. EIA Workshop CESAR SQU 13-16 June
2010
31
MARKET: DECISION MAKING ON RESOURCE
USE
• The market would
– allocate resources to maximize social welfare (sum of
consumer and producer surpluses),
– given individual freedom of choice on production and
consumption and
– if property rights are defined and enforced,
– And market is perfectly competitive.
• Market assures Pareto efficiency in resource
allocation.
– Pareto efficient situations are those in which it is
impossible to make one person better off without making
someone else worse off.

32. EIA Workshop CESAR SQU 13-16 June
2010
32
Market Failure In Resource Allocation
• Imperfect markets
– Natural monopoly due to economies of scale, etc.
• Lack of property rights
– Technological inadequacy of measurement
– High transaction costs of monitoring and enforcement.
• Externalities
• Public goods
• Missing preference
– Intra-generational
– Inter-generational

33. Individual to Social Decision Making
EIA Workshop CESAR SQU
05-08 June 2010
33
Tomato/ Hirunika’s
Income
Cucumber
/ Namal’s
Income
Points inside the curve
are (Pareto) inefficient
Points on the curve
are efficient
PPC
SIC
Land is limited

34. EIA Workshop CESAR SQU 13-16 June
2010
34
Social Decision Making
• Decisions on the trade-off efficiency vs.
equity.
• Economic institutions: Efficiency
–Socialism (Command and Control) and
Capitalism (Markets/ Incentives)
• Political institutions: Equity
–Dictatorship and Democracy

35. EIA Workshop CESAR SQU 13-16 June
2010
35
Meaning Of Development
• Maximize social welfare/ satisfaction
• 1950: Material development
• 1960: Equitable development
• 1970: Qualitative development
• 1980: Righteous development
• 1990: Sustainable development
• 2000: Participatory development
• 2010: ………………….?

36. Value of love is when it is shared
Value of knowledge is when it is shared