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ECONOMICS-1 Basic Concepts - 1
ECONOMICS-1 Basic Concepts - 1
Microeconomics
1
19-Mar-20
Factors of productions
Resource inputs used to produce goods and
services.
• Land
• Labor
• Capital
• Entrepreneurship.
2
19-Mar-20
Principles of Economics
• Scarcity: the limited nature of society’s resources
• Society has limited resources: Cannot produce all
the goods and services people wish to have
• Economics: The study of how society manages its
scarce resources
• Opportunity cost: Whatever must be given up to
obtain some item
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19-Mar-20
Marrying the one you love involves opportunity costs, primarily because:
a. being married restricts your freedom to marry someone else, and you must
also consider making someone else happy when making decisions that affect
both of you.
b. two can live as cheaply as one.
c. having children is unavoidable and reduces the time you could work for pay.
d. income taxes on single people are heavier than on married couples.c
4
19-Mar-20
Circular-flow diagram
Households:
Own the factors of production,
sell/rent them to firms for income
Buy and consume goods & services
Firms Households
Firms:
Buy/hire factors of production,
use them to produce goods and services
Sell goods & services
Circular-flow diagram
Revenue Spending
Markets for
G&S Goods &
G&S
sold Services bought
Firms Households
5
19-Mar-20
Market Interactions
Foreign market
Product
participants markets
Factor
Foreign market markets
participants
In a circular-flow diagram,
a. taxes flow from households to firms, and transfer payments flow from firms
to households.
b. income payments flow from firms to households, and sales revenue flows
from households to firms.
c. resources flow from firms to households, and goods and services flow from
households to firms.
d. inputs and outputs flow in the same direction as the flow of dollars, from
firms to households.
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19-Mar-20
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19-Mar-20
graph Com-
Wheat
Moving along a PPF puters
Involves shifting Wheat A 500 0
(tons)
resources from the B 400 1,000
production of one good 6,000
E C 250 2,500
to the other 5,000
Society faces a tradeoff 4,000 D D 100 4,000
Getting more of one 3,000 E 0 5,000
C
good requires sacrificing
2,000
some of the other B
1,000
The slope of the PPF A
The opportunity cost of 0
0 100 200 300 400 500 600
one good in terms of
the other Computers
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19-Mar-20
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19-Mar-20
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