Introduction to Economics - definitions - approaches

Economics

1. Economics Economics
DefinitionDefinition
Subject matter (traditional Vs modern Subject matter (traditional Vs modern
approach)approach)
Positive Vs NormativePositive Vs Normative
Deductive Vs Inductive Deductive Vs Inductive
Concept of equilibriumConcept of equilibrium

2. What are resources?What are resources?
Definition: The things used to make other Definition: The things used to make other
goodsgoods

3. BUT, there’s a BUT, there’s a
Fundamental Problem:Fundamental Problem:
SCARCITY: unlimited wants and SCARCITY: unlimited wants and
needs but limited resourcesneeds but limited resources

4. OPPORTUNITY COSTOPPORTUNITY COST
The Value of the Next Best Choice
(Ex: Sleeping is the opportunity cost of studying for a test)(Ex: Sleeping is the opportunity cost of studying for a test)

5. Opportunity CostsOpportunity Costs
This is really IMPORTANT – when you choose to do This is really IMPORTANT – when you choose to do
ONE thing, its value (how much it is worth) is ONE thing, its value (how much it is worth) is
measured by the value of the NEXT BEST CHOICE.measured by the value of the NEXT BEST CHOICE.
–This can be in time, energy, or even MONEYThis can be in time, energy, or even MONEY
If I buy a
pizza…
Then I
can’t afford
the
movies…
Q: What is the opportunity cost of buying pizza?

6. What are the 5 Economic QuestionsWhat are the 5 Economic Questions
Society (we) must figure out Society (we) must figure out
WHAT to produce (make)WHAT to produce (make)
HOW MUCH to produce (quantity)HOW MUCH to produce (quantity)
HOW to Produce it (manufacture)HOW to Produce it (manufacture)
FOR WHOM to Produce (who gets what)FOR WHOM to Produce (who gets what)
WHO gets to make these decisions?WHO gets to make these decisions?

7. PRODUCTION, cont.PRODUCTION, cont.
Goods – tangible things satisfies human Goods – tangible things satisfies human
wants (you can touch it) products we can buywants (you can touch it) products we can buy
Services – Intangible things satisfies human Services – Intangible things satisfies human
wantswants
Capital Goods – goods used to provide Capital Goods – goods used to provide
services or to make moneyservices or to make money

8. Capital Goods and Consumer Capital Goods and Consumer
GoodsGoods
Capital Goods: are Capital Goods: are
used to make other used to make other
goodsgoods
Consumer Goods: Consumer Goods:
final products that are final products that are
purchased directly by purchased directly by
the consumerthe consumer

9. ProductionProduction
Transformation of inputs into outputsTransformation of inputs into outputs

11. 4 Factors of Production4 Factors of Production

12. THREE parts to the Production THREE parts to the Production
ProcessProcess
Factors of Production – what we need to make Factors of Production – what we need to make
goods and servicesgoods and services
Producer – company that makes goods and/or Producer – company that makes goods and/or
delivers servicesdelivers services
Consumer – people who buy goods and services Consumer – people who buy goods and services
(formerly known as “stuff”)(formerly known as “stuff”)

13. Production ProcessProduction Process
Capital
Labor
Land
Entrepreneurship
Production/Manufacturing
“Factory”
Goods
Services
Consumers

14. GDPGDP 
is the sum of the market values, or
 
is the sum of the market values, or
prices, of all final goods and services prices, of all final goods and services
produced in a country during a period of produced in a country during a period of
time.time.