Ayesha Khalil

EconomicsUnlimited Wants And

Scarce Resources

Science of wealth, ii) Science of welfare, iii) Science of scarcity, iv) Science of growth and development

Economics is

DefinitionThe study of how people satisfy their unlimited wants and needs with limited resources people have to make choices

Types Of EconomicsMicro(individual consumers and firms)

Macro (Aggregates- Industry, not firm)

B. Positive factual statements-“What is” Normative (Value judgments- “What ought to be”)

VOCABULARY:Need

Want

Economics

Goods

Services

Wants vs. Needs:Wants are anything other than what is needed for basic survival

New car, video games, or a stereo system

Needs are things required for basic survival

Food, clothing, and shelter

Economicso The study that how to allocate limited resources and how to satisfy unlimited

demands.

Demando Willing to buy something o & Power to buy

Goodso Goods are tangible objects that satisfy people’s wants or needso Ex. Clothes, food, cars, etc.

Services o are actions that can satisfy people’s wants or needso Ex. Seeing a doctor, watching a baseball game, getting my oil changed

Classification Of Economics

economics

Theoretical

economics

Positive

economics

Normative

Economics

Applied

economics

Macro

economics

Micro

Economics

Microeconomicso Centres on the forces working at the individual level (e.g.

individual firms and consumers)o Focuses on the needs, desires and buying habits of the

individual consumero An example: 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

o Supply, Demand and Marketso Price theory o Behavior of the firmo Theory of the distribution of the wealth

Macroeconomicso The sum total of all micro partso Looks at the aggregate (sum or total) of individual marketso The four main areas of study

(1) Growth (increase in total output) Business fluctuation

(2) Price level (inflation) Money & banking

(3) Labour Markets (unemployment) National income & employment

(4) The balance in the foreign sector exports/imports, exchange rates

wants

satisfaction

wealth

Societal activities

Human

Micro vs. Macro

MICRO MACRO

o Firm’s reaction to increased demand for its product

o Decision of a worker to work less due to lower wages

o The effects on an industry (group of firms producing similar goods) due to higher labour taxes

o Government legislation aimed at monopolies

o Studying the effects on all firms in the economy due to a general increase in demand

o Total hours of labour (and unemployment)

o Effect on total production in the economy due to taxes

o Government legislation aimed at increasing taxes on profits for all firms

Positive Economicso Study of how economy workso Statements about how the economy works are positive

statements, whether they are true or noto Accuracy of positive statements can be tested by looking

at the facts—and just the facts

Normative Economicso Used to make value judgments, identify problems, and

prescribe solutionso Statements that suggest what we should do about

economic facts, are normative statementso Based on valueso Normative statements cannot be proved or disproved by

the facts alone

The Scope of EconomicsEXAMPLES OF MICROECONOMIC & MACROECONOMIC CONCERNS

Microeconomics

Production

Production/Output inIndividual Industries andBusinesses

How much steelHow many officesHow many cars

Prices

Price of IndividualGoods and Services

Price of medical carePrice of gasolineFood pricesApartment rents

Income

Distribution of Incomeand Wealth

Wages in the auto industryMinimum wagesExecutive salariesPoverty

Employment

Employment byIndividual Businesses &Industries

Jobs in the steel industryNumber of employees in a firmNumber of accountants

Macroeconomics

NationalProduction/Output

Total Industrial OutputGross Domestic ProductGrowth of Output

Aggregate Price Level

Consumer pricesProducer PricesRate of Inflation

National Income

Total wages and salariesTotal corporate profits

Employment andUnemployment in theEconomy

Total number of jobsUnemployment rate

Factors of Production

Land labor capital & entrepreneur are the resources that businesses use to produce goods and services.

Factor of productiono Resources used to produce goods and services- land,

labour, capital, and entrepreneurshipo Land: natural resources and surface land and watero Land, water, fish, animals, forests, mineral deposits

laborLabour: the work people do-human effort both physical and mental

results in economic goods and services

Goods are tangible objects that satisfy people’s wants or needs

Services are actions that can satisfy people’s wants or needs

Capital & Entrepreneurshipo Capital: manufactured goods used to make other goods and

services o Ex. Machines, buildings, and tools used to assemble

automobileso Capital increases productivity- the amount of output that

results from a given level of inputso Entrepreneurship: the ability to start a new business or create

new productso About 30% of new business enterprises failo Of the 70% that survive, only a few become successfulo

Income of production factors

Land earns rent.

Labour earns wages.

Capital earns interest.

Entrepreneurship earns profit.

5th factor of production

Technology: (sometimes considered the 5th F.O.P) the use of science to develop new products and production needs

Resourceso Resources are used to produce goods and services.o Producers of goods and services are influenced by natural,

human, and capital resources.o Natural resources: Materials that come from nature (water, soil,

wood, coal)o   Human resources: People working to produce goods and

serviceso   Capital resources: Goods made by people and used to produce

other goods and services (machines, tools, buildings)o  Producers: People who use resources to make goods and/or

provide services

Economics choice & opportunity cost

Economic choice: The choice of or decision among alternatives or possibilitiesOpportunity cost: The next best choice that is given up when a decision is made

Any Question???

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