Introduction to Economics ys
Introduction <ul><li>The term &quot;economy,&quot; from which we get   “ E conomics,&quot; comes most directly from the  O...
Definition —Lionel Robbins   <ul><li>‘ Economics is a social science, which studies human behaviour as a relationship betw...
Modern Definition <ul><li>The scientific study of the choices made by individuals and societies in regard to the alternati...
Meaning <ul><li>Economics  is the study of the way people organize themselves to sustain life and enhance its quality. </l...
Social Science <ul><li>Social Science can be defined as a systematised body of knowledge pertaining to human relationship ...
Scientific Methodology <ul><li>Organise reality in a rational manner by observation and gathering of data. </li></ul><ul><...
Economics as Social Science <ul><li>It  is a social science because it is a systematised body of knowledge regarding econo...
Steps in Scientific method <ul><li>1   Recognising the problem or issue. </li></ul><ul><li>2   Cutting away unnecessary de...
Scarcity <ul><li>The Excess of wants resulting from having limited resources ( land labour capital and entrepreneurs) in s...
Micro Economics <ul><li>  </li></ul><ul><li>Micro means small  </li></ul><ul><li>Microeconomics  is the branch of economic...
Macro Economics <ul><li>Macro means large. </li></ul><ul><li>Macroeconomics is the branch of economics that studies the en...
Examples <ul><li>studying how firms react to increasing costs of production by raising the price and subsequently how cons...
Growth <ul><li>Growth is the process of increasing the economy's ability to produce goods  </li></ul><ul><li>The main sour...
Economic Growth <ul><li>Economic growth is a term usually associated with a region, country or area  </li></ul><ul><li>Eco...
Development <ul><li>Development  means  goals such as access to basic necessities such as food water shelter, availability...
Economic Development <ul><li>It  is a measure of welfare ,a measure of well being .   </li></ul><ul><li>It is measured not...
Sustainable development <ul><li>Sustainable development is development that meets the needs of the present without comprom...
Definition <ul><li>  UNDP </li></ul><ul><li>Development that meets the need of the present without compromising the abilit...
Positive concepts <ul><li>They  are  objective statements  </li></ul><ul><li>Deal  with matters of fact, evidence  or they...
Normative Concepts <ul><li>Subjective Statements </li></ul><ul><li>Value judgments based on opinion only. </li></ul><ul><l...
Examples <ul><li>An increase in the price of wheat to $5 a bushel gives farmers a higher  living standard  and helps save ...
Examples <ul><li>Women should be paid the same as men. </li></ul><ul><li>Defence spending ought to  be cut. </li></ul><ul>...
Ceteris Paribus <ul><li>A very basic (essential) assumption which allows economic models to predict  outcomes and relation...
Ceteris Paribus <ul><li>Ceteris paribus is an old Latin phrase that translates as ‘other things being equal’ or  ‘ other f...
Factors of Production <ul><li>Anything which contributes to production is called a factor of production. </li></ul><ul><li...
<ul><li>Land  </li></ul><ul><li>In economics land refers to all kinds of natural resources that are freely found in nature...
<ul><li>Capital </li></ul><ul><li>In  Economics Capital refers to that part of wealth which is used along with labour for ...
Factor Payments <ul><li>Rent  </li></ul><ul><li>It is the factor payments to the owners of land for using the various reso...
Factors of Production <ul><li>Interest </li></ul><ul><li>It is the payments for the use of borrowed funds or the price pai...
Utility <ul><li>Utility is defined as want satisfying power of a commodity so all the commodities having capacity to satis...
Features of utility <ul><li>     It is a subjective term </li></ul><ul><li>     It cannot be measured objectively </li></u...
Opportunity cost <ul><li>T he cost of any activity measured in terms of the benefit from the  next  best alternative forgo...
Opportunity cost <ul><li>Opportunity cost for different people will not be the same. </li></ul><ul><li>An opportunity cost...
Free Goods <ul><li>It  refer to those goods which are provided freely by nature ,their supply is abundant that no price is...
Economic goods <ul><li>Economic goods are those goods which have utility and which are relatively scarce . </li></ul><ul><...
Basic Economic Question <ul><li>What should be produced in the economy and  </li></ul><ul><li>in  what quantities ? </li><...
Types of Economy <ul><li>Market  </li></ul><ul><li>Planned </li></ul><ul><li>Mixed </li></ul><ul><li>Transition Economies ...
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Introduction to economicsi bys

  1. 1. Introduction to Economics ys
  2. 2. Introduction <ul><li>The term &quot;economy,&quot; from which we get “ E conomics,&quot; comes most directly from the Old French word &quot;economie,&quot; meaning &quot;management of a household.&quot; </li></ul>
  3. 3. Definition —Lionel Robbins <ul><li>‘ Economics is a social science, which studies human behaviour as a relationship between ends and scarce means, which have alternative uses’. </li></ul><ul><li>Four basic issues </li></ul><ul><li>    1 Multiplicity of wants </li></ul><ul><li>     2 Gradability of wants </li></ul><ul><li>     3 Scarcity of resources </li></ul><ul><li>4 Alternative use of resources </li></ul>
  4. 4. Modern Definition <ul><li>The scientific study of the choices made by individuals and societies in regard to the alternative uses of scarce resources which are employed to satisfy wants . </li></ul><ul><li>  </li></ul>
  5. 5. Meaning <ul><li>Economics is the study of the way people organize themselves to sustain life and enhance its quality. </li></ul><ul><li>It is a social science that studies the allocation of scarce resources used to produce goods and services that satisfy consumers' unlimited wants and needs . . . </li></ul>
  6. 6. Social Science <ul><li>Social Science can be defined as a systematised body of knowledge pertaining to human relationship and groups living in society .Different aspects of human behaviour or social life of human beings is dealt with as parts of group or society and not as independent individuals . </li></ul><ul><li>e.g. History, psychology, sociology, economics, political science . </li></ul>
  7. 7. Scientific Methodology <ul><li>Organise reality in a rational manner by observation and gathering of data. </li></ul><ul><li>Spotlighting aspects of data to see for emerging patterns. </li></ul><ul><li>Formulate hypothesis. </li></ul>
  8. 8. Economics as Social Science <ul><li>It is a social science because it is a systematised body of knowledge regarding economic behaviour of man in society . </li></ul><ul><li>it seeks to explain how society deals with the scarcity problem </li></ul><ul><li>It adapts a scientific framework & it is particularly concerned with studying human behaviour and about economy as a whole </li></ul>
  9. 9. Steps in Scientific method <ul><li>1 Recognising the problem or issue. </li></ul><ul><li>2 Cutting away unnecessary detail by making assumption. </li></ul><ul><li>3 Developing a model or story of the problem or issue. </li></ul><ul><li>4 Making predictions. </li></ul><ul><li>5 Testing the model i.e. how well it predicts events. </li></ul>
  10. 10. Scarcity <ul><li>The Excess of wants resulting from having limited resources ( land labour capital and entrepreneurs) in satisfying the endless wants of people </li></ul><ul><li>Economics concerns itself with only those things which are scarce . </li></ul><ul><li>Universal Problem </li></ul><ul><li>  If something is scarce , it will have value </li></ul>
  11. 11. Micro Economics <ul><li>  </li></ul><ul><li>Micro means small </li></ul><ul><li>Microeconomics is the branch of economics that studies individual units: e.g. households, firms and industries. It studies the interrelations between these units in determining the pattern of production and distribution of goods and services. </li></ul>
  12. 12. Macro Economics <ul><li>Macro means large. </li></ul><ul><li>Macroeconomics is the branch of economics that studies the entire economy,aggregate consumption,aggregate production , aggregate investment , unemployment, inflation, business cycles and so on(grand totals):e.g. the overall level of prices, output and employment in the economy. </li></ul><ul><li>It is concerned with the economy as a whole. </li></ul>
  13. 13. Examples <ul><li>studying how firms react to increasing costs of production by raising the price and subsequently how consumer/ household spending is adjusted when the price rises . </li></ul><ul><li>If we use the analogy of a car, the study of the engine, axle, and brakes separately are micro issues </li></ul><ul><li>how to keep the rate of change of prices under control,how to increase the number of jobs </li></ul>
  14. 14. Growth <ul><li>Growth is the process of increasing the economy's ability to produce goods </li></ul><ul><li>The main sources of growth are increases in the quantity and quality of the economy's resources (land, labour ,capital and entrepreneurship). </li></ul><ul><li>It is the increase in national output within an economy during a time period usually 12 months </li></ul>
  15. 15. Economic Growth <ul><li>Economic growth is a term usually associated with a region, country or area </li></ul><ul><li>Economic growth means that the actual output of that area increases. that means, the amount of goods and services produced in that area increased. </li></ul><ul><li>It is measured by measuring total national output in an economy in two different time periods. </li></ul>
  16. 16. Development <ul><li>Development means goals such as access to basic necessities such as food water shelter, availability of employment, education & culture , having social choices and basic freedom such as freedom of speech and democratic elections . </li></ul>
  17. 17. Economic Development <ul><li>It is a measure of welfare ,a measure of well being . </li></ul><ul><li>It is measured not just in monetary terms but also in terms of other indicators such as education indicators health indicators and social indicators. </li></ul>
  18. 18. Sustainable development <ul><li>Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs </li></ul><ul><li>If a country’s capital and land assets remain constant or increase over time then it is sustainable development , </li></ul><ul><li>It means not using up resources faster than the Earth can replenish them. </li></ul>
  19. 19. Definition <ul><li>  UNDP </li></ul><ul><li>Development that meets the need of the present without compromising the ability of future generations to meet their own needs . </li></ul><ul><li>Brundtland Report </li></ul><ul><li>&quot; Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.&quot; </li></ul>
  20. 20. Positive concepts <ul><li>They are objective statements </li></ul><ul><li>Deal with matters of fact, evidence or they question about how things actually are. </li></ul><ul><li>Involves no value-judgements, opinions , emotions </li></ul><ul><li>C an be proved disproved using a scientific approach </li></ul><ul><li>C an be described as “what is, what was, and what probably will be” economics </li></ul><ul><li>Unbiased or Detached </li></ul><ul><li>Depends on Logic, reason & Empiricism . </li></ul><ul><li>Explains the way the economy actually operates . </li></ul>
  21. 21. Normative Concepts <ul><li>Subjective Statements </li></ul><ul><li>Value judgments based on opinion only. </li></ul><ul><li>Cannot be proved or disproved as right or wrong. </li></ul><ul><li>Biased and Attached. </li></ul><ul><li>Depends on values ,beliefs, preferences ,self interest. </li></ul><ul><li>Contain words such as: should, ought, or prefer . </li></ul><ul><li>S eeks to recommend the way the economy should operate. It is the policy side of economics </li></ul>
  22. 22. Examples <ul><li>An increase in the price of wheat to $5 a bushel gives farmers a higher living standard and helps save 1,000 family farms. </li></ul><ul><li>The United States spends $10 billion more on national defen s e than on higher education. </li></ul><ul><li>A market-based economy has less income inequality that other economic systems </li></ul><ul><li>The price of wheat should be $5 a bushel to give farmers a higher living standard and to save the family farm. </li></ul><ul><li>    The United States would be better off spending $10 billion more on national defense than higher education. </li></ul><ul><li>    A market-based economy is clearly the best possible economic system </li></ul><ul><li>  </li></ul>
  23. 23. Examples <ul><li>Women should be paid the same as men. </li></ul><ul><li>Defence spending ought to be cut. </li></ul><ul><li>Spending on defence is greater than spending on education </li></ul><ul><li>Socrates is a man . He was sentenced to death . </li></ul><ul><li>Women are paid less than men. </li></ul>       Spending on defence is greater than spending on education        Socrates is a man . He was sentenced to death .        Women are paid less than men.
  24. 24. Ceteris Paribus <ul><li>A very basic (essential) assumption which allows economic models to predict outcomes and relationships with a degree of certainty and conviction simply by assuming that variables not addressed in the model are kept constant. </li></ul><ul><li>e.g. An increase in the amount of hours spent studying Economics will lead ceteris paribus , to an increase in average marks received on economics test. </li></ul>
  25. 25. Ceteris Paribus <ul><li>Ceteris paribus is an old Latin phrase that translates as ‘other things being equal’ or ‘ other factors remain unchanged </li></ul><ul><li>It makes possible to identify the cause-and-effect relation between two factors , </li></ul><ul><li>It is a quick method of showing that we have made the assumptions </li></ul><ul><li>e.g. What would happen to the quantity demanded of Coca-Cola in Germany if prices increased by 10%, ceteris paribus </li></ul>
  26. 26. Factors of Production <ul><li>Anything which contributes to production is called a factor of production. </li></ul><ul><li>Land, Labour, capital, and entrepreneurship used by society to produce consumer satisfying goods and services are termed as factors of production, they are also known as resources or scarce resources </li></ul>
  27. 27. <ul><li>Land </li></ul><ul><li>In economics land refers to all kinds of natural resources that are freely found in nature ,which are limited in supply ,which can be controlled by man and used in the production of goods. Reward for land is rent </li></ul><ul><li>Labour </li></ul><ul><li>It can be defined as any mental or physical effort ( excluding entrepreneurial organization ) which contributes to the production of goods and services for which it receives income. Reward for labour is wages / salaries </li></ul>
  28. 28. <ul><li>Capital </li></ul><ul><li>In Economics Capital refers to that part of wealth which is used along with labour for producing additional wealth Reward for capital is interest. </li></ul><ul><li>Entrepreneurship </li></ul><ul><li>I s the special sort of human effort that takes on the risk of bringing labour, capital, and land together to produce goods . or services in the expectation of a future reward. That reward is called profit in economics </li></ul>
  29. 29. Factor Payments <ul><li>Rent </li></ul><ul><li>It is the factor payments to the owners of land for using the various resources of land in the production of goods and services </li></ul><ul><li>Wages </li></ul><ul><li>A factor payment to the owner of labour for using labour services in the production of goods and services </li></ul>
  30. 30. Factors of Production <ul><li>Interest </li></ul><ul><li>It is the payments for the use of borrowed funds or the price paid for the use of loanable funds’ </li></ul><ul><li>Profit </li></ul><ul><li>Profit refers to a reward enjoyed by an entrepreneur for his entrepreneurship or for his contribution to the process of production. It is a reward for bearing of risks and uncertainties and introducing innovations </li></ul>
  31. 31. Utility <ul><li>Utility is defined as want satisfying power of a commodity so all the commodities having capacity to satisfy a want possess utility . </li></ul><ul><li>Total utility of a commodity refers to the sum total of the utility derived by a consumer from all the units of that commodity taken together at a point of time or during a period of time . </li></ul><ul><li>  </li></ul><ul><li>Marginal utility refers to an addition made to the total utility by consuming one more unit of a commodity </li></ul>
  32. 32. Features of utility <ul><li>     It is a subjective term </li></ul><ul><li>     It cannot be measured objectively </li></ul><ul><li>     It is a relative term </li></ul><ul><li>     It has no ethical significance </li></ul><ul><li>     It is different from pleasure </li></ul><ul><li>     It depends upon the intensity of the want </li></ul><ul><li>     Utility of the good can be multipurpose </li></ul><ul><li>     Utility does not mean satisfaction </li></ul><ul><li>     Utility is distinct from usefulness. </li></ul>
  33. 33. Opportunity cost <ul><li>T he cost of any activity measured in terms of the benefit from the next best alternative forgone or sacrificed. </li></ul><ul><li>Opportunity cost is the option foregone in making a choice of alternative A over alternative B . When the best alternative is chosen from a range of alternatives the second best choice is known as opportunity cost. </li></ul>
  34. 34. Opportunity cost <ul><li>Opportunity cost for different people will not be the same. </li></ul><ul><li>An opportunity cost can be either explici t , usually involving a monetary payment, or i mplicit , which does not involve a transaction </li></ul><ul><li>E.g . The opportunity cost of deciding not to work is the lost wages foregone   </li></ul><ul><li>The opportunity cost of spending money on a foreign holiday is the lost opportunity to buy a new dishwasher or the chance to enjoy two short breaks inside the United Kingdom </li></ul>
  35. 35. Free Goods <ul><li>It refer to those goods which are provided freely by nature ,their supply is abundant that no price is paid for securing them .e.g. air, water, sunlight etc .All free gifts of nature are free goods </li></ul><ul><li>Does not incur any opportunity costs in its production I.e. resources involved have no alternative uses. </li></ul><ul><li>No cost so no choice .No market , zero price & no relevance for surplus. </li></ul><ul><li>Production using free goods undertaken with free resources. </li></ul><ul><li>Does not appeal to the economist. </li></ul>
  36. 36. Economic goods <ul><li>Economic goods are those goods which have utility and which are relatively scarce . </li></ul><ul><li>Cost is incurred for producing them and price is paid for purchasing them . </li></ul><ul><li>It uses scarce resources in being provided, </li></ul><ul><li>They have an opportunity cost of the alternative goods foregone and are the things which economists are interested in . </li></ul><ul><li>Limited availability in relation to desired use. </li></ul><ul><li>Exchanged through markets. </li></ul>
  37. 37. Basic Economic Question <ul><li>What should be produced in the economy and </li></ul><ul><li>in what quantities ? </li></ul><ul><li>How should production be organised? </li></ul><ul><li>For whom should production take place? </li></ul>
  38. 38. Types of Economy <ul><li>Market </li></ul><ul><li>Planned </li></ul><ul><li>Mixed </li></ul><ul><li>Transition Economies </li></ul>

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