Welcome to

Economics!
Semester 1, 2025
Course information

Course Class
Assessments
outline Resources
Why Economics?
Survey Time!!
Topic 1: Introduction to
Economics
Topic Objectives
By the end of this topic, you will be able to:
1. Define economics and discuss its importance in understanding daily life.
2. Define and distinguish between micro and macro approaches to economics
3. Define
and explain the basic economic problem (BEP) using the key
concepts of scarcity, choice and opportunity cost.
4. Explain
how the BEP answers the questions in an economic system of
‘what to produce’, ‘how to produce’, ‘how much to produce’ and ‘for whom
to produce’.
5. Identify and describe the factors of production and their interdependence.
What is Economics?
1.Economics is a study of rationing systems
- Planned Economies
- Free Market Economies

2.It
is the study of how scarce resources are allocated to
fulfill the infinite wants of consumers
1.NEEDS: are the basic necessities that a
person must have in order to survive
e.g. food, water, warmth, shelter and
clothing

2.WANTS: are the desire that people have

e.g. things that people would like to have,
such as bigger homes, iphones, etc.
The Economic Problem
1.Unlimited Wants
2.ScarceResources – Land,
Labour, Capital
3.Resource Use
4.Choices

A wind farm. Copyright: iStock.com

 SCARCITY
THE CENTRAL UNLIMITED
LIMITEDECONOMIC PROBLEM SUMMARISED
RESOURCE
needed to WANTS
S fulfil

Limited & have Unlimited & varying

alternative uses importance

Can never satisfy Unlimited

Limited amount of
goods & unlimited wants
with limited wants
services desired @
can be resources
any point in
produced time
CHOICE

OPPORTUNITY COST
The Economic Problem
O What goods and services should an economy
produce? – should the emphasis be on agriculture,
manufacturing or services, should it be on sport and
leisure or housing?
O How should goods and services be produced? –
labour intensive, land intensive, capital intensive?
Efficiency?
O Who should get the goods and services produced?
– even distribution? more for the rich? for those who
work hard?
 Opportunity Cost
1. whena choice is made, it involves a sacrifice
known as an Opportunity Cost

2. Definition:Opportunity cost is the real cost

of the next best alternative that is forgone.
- ‘next best alternative’ implies a scale of
preference

3. usually
measured in terms of goods, services
or monetary value given up (relative to the
alternative course of action).
Activity

1. In groups of 4, search for a recent article

involving a decision made by the government, a
firm (corporation), etc.

2. Identify the scarce resource/s involved

3. Most importantly; identify the opportunity cost

involved
 Resources in Economics - Factors of
Production

land • natural resources available for production

• renewable resources: those that replenish
• non-renewable resources: cannot be
replaced

labor • physical and mental effort of people used in

production

Capital • all non-natural (manufactured) resources

that are used in the creation and production
of other products

Enterprise (Entrepreneurship) • refers to the management, organization and

planning of the other three factors of
production
 Factors of Production

Payment
s
Enterpris
to Lan Labor Capita e
factors d l
of
Productio
n
Rent Wage Interest Profit
s

INCOME
 Free and Economic Goods

1.Hasan opportunity
1.Does not incur any
cost (goods that use
opportunity costs in
resources which could
its production or
have been put to use
when consumed
producing something
2.Notrelatively scarce else)
(not limited in
supply)
2.Uses scarce resources
3.Will not have a price

3.Will have a price

Types of Products
1.Consumer goods – products sold to
general public
- consumer durable goods:
products that last a long time and
can be used repeatedly
- non-durable goods:
products that need to be
consumed very shortly after purchase
1.Capitalgoods or Producer goods –
products purchased by other businesses
to produce other goods and services
e.g. computers, machinery, tools

2.Services – intangible products

provided by businesses
e.g. teachers (education),
doctors (health care)
 Production
Possibility Frontier
(PPF)
Production Possibility Curves (Frontier) also
known as PPF

1.Production – output of goods and services

2.Possibility – maximum attainable amount
3.Frontier – border or boundary
4.PPF shows the boundary of what is possible
and is used as an illustration in economics
to show the choices facing all countries in
producing goods which use limited factors
of production.
 The Production Possibility Frontier (PPF)

 The PPF demonstrates how opportunity costs arise

when individuals or the community makes choices.
 It shows the various combinations of two alternative
products that can be produced, given technology,
fixed quantity of resources and when all resources
are used to their full capacity.
PPF - assumptions
1.The economy can only produce two goods (or services)
2.The state of technology is constant / fixed
3.The quantity of resources available remains unchanged
4.All resources are fully employed

What are the implications of

these assumptions??
Production Possibility Frontier
Production Butter Guns
Possibilities (m. kg) (‘000s)

A 0 15
B 1 14
C 2 12
D 3 9
E 4 5
F 5 0
Production Possibility Frontier
Guns Unattainable

Z
A B
15 --
14 -- Resources fully utilised
12 --
10 --
C
8 W-- D
6 -- X E
4 --V
2 --
0 --- F Butter
Inefficient
 PPC CHARACTERISTICS – Using the
PPF to illustrate the concepts of
scarcity, choice & opportunity cost

1.Points outside the PPC, is desirable but unattainable (due

to the scarcity problem).
2.All attainable points on the PPC represent “productive
efficiency” – no wastage or underemployment of
resources to produce the maximum output possible (the
choices available)
3.Points inside the PPC, though attainable, is productively
inefficient – resource wastage or underemployment
4.However, only one point on the PPC is considered
“allocatively efficient” (where the combination of the 2
PPF example 1:
A B C D E 1.Copy the table
Food 200 150 100 50 0 2.Draw the PPF (label)
3.Mark
Shoes 0 40 80 120 160
1. Unobtainable
2. Inefficient
3. Efficient & obtainable
4.Discuss Opportunity
Cost
1. At point A
2. At point C
Production Possibility Frontiers

O Show the different combinations of goods

and services that can be produced with a
given amount of resources
O No ‘ideal’ point on the curve
O Any point inside the curve – suggests
resources are not being utilised efficiently
O Any point outside the curve – not attainable
with the current level of resources
O Useful to demonstrate economic growth and
opportunity cost
Production Possibility Frontiers
Capital Goods IfIf it devotes all
the
Assume country
a country is
resources
If it reallocates to its
capital
atcan
goods
resources
produce
point A ontwo
it (moving
could the
round
Ym types
PPF
the PPF
produce of
It from
canagoods
A to B) it can
maximum
with
of Ym.its
produce
produce resources
more consumer
the
goods but only
– capital at the
goods
combination
If it devotes
expense of fewer of Yo
all capital
its
A and
goods. consumer
resources to
Thegoods
opportunity
Yo capital
goods
cost of producing
and
anitextra
consumer goods
Xo
Xo – consumer
couldX1 produce
consumeragoods is
goods
Yo – Y1 capital goods.
maximum of Xm

Y1 B

Xo X1 Xm Consumer Goods
 Production Possibility
Frontiers
Capital Goods
It can only produce at
Production
points outside the PPF
inside the PPF –
if it finds a way of
e.g. point
expanding its B
meansorthe
resources improves

Y1
C the productivity
country of
is not
those resources it
usinghas.all This
its will
A already

.
Yo resources
push the PPF further
outwards.

Xo X1 Consumer Goods
1.Production Possibility Frontiers (PPF)
School Y1
s
Y Z1

Z
W
V

0 X X1

Motorcar
s