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Introduction To Economics

This document provides an introduction to economics. It defines economics as the study of how individuals and societies make decisions about using scarce resources to fulfill wants and needs. It discusses key concepts in economics like scarcity, factors of production, microeconomics, macroeconomics, GDP, and different economic systems. It also profiles important economists like Adam Smith, Alfred Marshall, and Lionel Robbins and their contributions to the field. The document uses examples and diagrams to explain core economic ideas around topics like the circular flow, production possibilities, and cost-benefit analysis.

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Lea Guico
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592 views36 pages

Introduction To Economics

This document provides an introduction to economics. It defines economics as the study of how individuals and societies make decisions about using scarce resources to fulfill wants and needs. It discusses key concepts in economics like scarcity, factors of production, microeconomics, macroeconomics, GDP, and different economic systems. It also profiles important economists like Adam Smith, Alfred Marshall, and Lionel Robbins and their contributions to the field. The document uses examples and diagrams to explain core economic ideas around topics like the circular flow, production possibilities, and cost-benefit analysis.

Uploaded by

Lea Guico
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Introduction to

ECONOMICS
Needs vs Wants
If given Php 46,000.00, what will you choose?
Definitions of Economics
 Economics – the study of how individuals and
societies make decisions about ways to use scarce
resources to fulfill wants and needs.
 It is the study of how society uses its limited
resources
 A social science that deals with the production,
distribution, and consumption of goods and services
Adam Smith
Father of Economics

 Book “An Inquiry into Nature and Causes of Wealth


of Nation” (1776)

 Define economic as the practical science of production


and distribution of wealth.
Alfred Marshall
“Principles of Economics” (1890)

 Defined “Political Economy” or Economics is a study


of mankind in the ordinary business life which
examines part of the individual and social action
which is most closely connected with the attainment
and with the use of the material requisites of well
being.
Lionel Robbins
 In his, “An Essay on the Nature and Significance of
Economic Science” define Economics as the science
which studies human behavior as a relationship
between ends and scarce means which have
alternative uses.
 Ends
– human wants
 Means – resources with which wants are fulfilled
TINSTAAFT Concept
“There Is No Such Thing As A Free Lunch”
 Because resources are limited, virtually everything
we do has a cost – even when it seems as if we are
getting something “for free”.

 Howdoes the business recover these cost?


 Who pays for these costs?
The Economic Problem
SCARCITY AND CHOICE
 Is the condition that results from
society not having enough
resources to produce all the
things people would like to
have.
 The resources we use to produce
goods and services are limited
 The difference between wants
and needs and the available
resources.
 Everyone must make choices
about using scarce resources.
What COULD you have done instead of come to
school today?
Economic Choices and Decision Making

 Trade-Offs (alternative choices) – These decisions


involve picking one thing over all the other
possibilities

 Opportunity Cost – the cost of the next best


alternative use of money, time or resources when
one choice is made rather than another.
- The value of the next best choice.
How to conduct a Cost-benefit Analysis

 Determine Costs
 Calculate Benefits
 Compare Alternatives
 Report and Plan Action
Three Basic Questions
 What to produce?

 How to produce?

 For whom to produce?


The Factors of Production
Division of Economics
 Macroeconomics
The branch of economics that studies the overall
working of a national economy
 Growth

 Inflation

 Interest
Rates
 Unemployment

 Taxes
Division of Economics
 Microeconomics
The branch of economics that studies how households
and businesses reach decisions about purchasing,
savings, setting prices, competition in business, etc.
Scope of Economics
 Description
 Gross Domestic Product (GDP)
 Is the most comprehensive measure of a country’s total output and is
the key measure of the nation’s economic health
 Total market value of all final goods and services produced within a
given period by factors of production located within a country.
 Analysis
 Helps to discover why things work and how it happens.
 Explanation
 Why the measure is, or is not, performing in the manner
expected
 Prediction
To Calculate GDP

Expenditure Categories:
• Personal Consumption Expenditures (C): household spending on consumer
goods
• Gross Private Domestic Investment (I): spending by firms and households on
new capital, i.e.,plant, equipment, inventory, and new residential structures
• Government consumption and gross investment (G)
• Net Exports (EX-IM): difference between exports (produced goods and
services) and imports (purchase of goods and services from abroad). The
figure can be positive or negative.
KEY TERMS in Economics
 Economic Products
 GOODS – an item that is economically useful or satisfies
an economic want

 Consumer Goods – intended for final use by individuals.


 Capital Goods – when manufactures good is used to
produce other goods and services
 Durable Goods – goods that lasts 3 years of more when
used on a regular basis.
 Non-Durable Goods – goods that lasts less than 3 years.
KEY TERMS in Economics
 SERVICE – is a work that is performed for someone.
 Intangible product

 Consumer – is a person who use the goods and


service to satisfy wants and needs.

 Value – refers to a worth that can be expressed in


monetary terms (dollar, cents, etc..)
KEY TERMS in Economics
Paradox of Value – is the situation where some
necessities, such as water, have little monetary value,
whereas some non-necessities, such as diamonds, have
a much higher value.

 Utility – is the capacity to be useful and provide


satisfaction.
 It may vary from one person to another
KEY TERMS in Economics
 Wealth – is the accumulation of those products that
are tangible, scarce, useful, and transferable from
one person to another.
The Circular Flow of Economic Activity
The Circular Flow of Economic Activity

 Factor Markets (Resource Market) – the markets


where productive resources are bought and sold

 Product Markets – markets where producers sell


their goods and services to consumers

Play Video Clip on the Circular Flow of Economics


Productivity and Economic Growth

 Economic Growth – occurs when nation’s total


output goods and services increases over time.
 Productivity
– is a measure of the amount of output
produced by a given amount.
 Discussed in terms of labor.

 Division of Labor – take place when work is arranged so


that individual workers do fewer tasks than before.
 Specialization – Takes place when factors of production
performs tasks that they can do relatively more efficiently
than others.
Production Possibilities
 Production Possibilities Frontier – a diagram
representing various combination of goods and/or
services an economy can produce when all
productive resources are fully employed.

Play Video Clip on Production Possibilities Frontier


Think like an Economist
 Build Simple Models – one of the most important
strategies of economist is the economic model
 Illustration of graphical form.

 Employ Cost-Benefit Analysis – a way of thinking


about a problem that compares the cost of an action to
the benefits received.
Play Video Clip on Cost-Benefit Analysis

 Take Small, Incremental Steps – this is especially


valuable whenever we are unsure of the exact, or total,
cost involved.
Types of Economic System
 Pure Market Economy
 Pure Command Economy
 Traditional Economy
 Mixed Economy
Pure Market Economy
 NO government involvement in economic decisions.
Private firms account for all production.

 Consumers decide WHAT should be produced. They


do this through the purchases they make.

 Businesses determine HOW the products will be


produced. They must be competitive.

 WHO buys the products? The people with the most


money are able to buy more goods and services.
Pure Command Economy
 All resources are government-owned.

 One person (dictator) or a group of officials decide


WHAT products are needed.

 The government runs all businesses, controls all


employment, and decides HOW goods and services
will be produced.

 The government decides WHO receives the


products that are produced.
Traditional Economy
 Economy is shaped largely by custom or religion.

 Customs and religion determine the WHO, WHAT,


and HOW.
Mixed Economy
 Most economies in the world today are mixed.

 Classification is based on how much government


intervention there is.

 Economic System that incorporates some


Governmental involvement into a Market Based
Economy.
THANK YOU

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