PRINCIPLES OF ECONOMICS

Chapter One: An introduction to

economics
Instructors:
 Waqas Mazhar
 waqas.mazhar@iba-suk.edu.pk


 Ghullam Abbas
 g.abbas@iba-suk.edu.pk
Economic Problem

Resources

Human
Needs
and wants
Economic Problem
 Scarcity: Scarcity is the problem of infinite human
needs and wants, in a world of finite resources
 Unlimited wants
 Economic goods are scarce goods.
 Free goods: unlimited in supply
Choice and oppertunity cost

Scarcity

Choice
Choice and oppertunity cost
 When we make choice, something have
to be given up or forgone.
 What we sacrifice is basically oppertunity
cost
 But if we have many choice then we say
next most desired alternative is
oppertunity cost.

Economics – What is it about?

 Who will work?

 What goods and
how many of
them should be
produced?
 What resources
should be used
in production?
 At what price
should the
goods be sold?
Economics: definition


 Economics is the study

of choices that we
make to utilize our
scarce resources .
Production, consumption and
exchange:


 Production:
 Any work which helps
to satisfy peoples’
wants and for which
there is price for it.
Production, consumption and
exchange:
 Consumption: using up
 Durable goods: long life
 Nondurable goods: used up imediatly
 Services: intangible

 Exchange:

Wealth and Income


 Wealth: stock of goods

having any value
 Private wealth:
possessions of individual
 Social wealth: owned by
community
 National wealth:
possessions by citizens
of a country
Wealth and Income

 Income: flow of
money, earned or
received
 likewages, salaries,
interst, rent,
profits from any
business or shares

Difference between income and
wealth
 Income is flow of money received during
a period of time
 Wealth is stock of goods owned at some
moment in time
Main points
 Human wants appear to be unlimited.
 Scarce resources to satisfy human
unlimited wants.
 Opportunity cost means a choice is made,
something has to be given up.
Main points
 Free goods don’t have opportunity cost
 Production includes output of goods and
services
 To survive we engage in exchange

 End of chapter