Fundamentals of Economics and

feasibility studies
(HU200)
We are consumers Why To Study
(and sometimes, we Economics
ask for money).

?
We invest our money/ Why To Study
We can be investment Economics
consultants.

?
You might be Why To Study
businessmen/ Economics
businesswomen/
business consultants.

?
 Course Objectives
The aim of the course is to enable the
students to:
• Understand how consumer decisions' are
influenced by economic forces,
• Recognize the economic choices available
and decisions made by individuals and
firms,
 Course Objectives
The aim of the course is to enable the
students to:
• Explain the forces of demand and supply
• Explain how the prices of labor, capital, and
land are set in the economy, and how these
prices are used to allocate resources
• Apply the techniques and theorems in real
applications.
Course Contents
 Course Contents
• Basic Concepts of Economics
• Supply and Demand
• Production Cost
• Feasibility Study
• Shared economy
 What is
Economics
?
 What is Economics ?

Economics is a social science that examines

how people choose among the alternatives
available to them.
 What is Economics ?
There are 4 main definitions of Economics:
• Wealth Definition: “Economics as a science
which inquired into the nature and cause of
wealth of Nations” (Adam Smith, the Wealth of
Nations, 1776).
 What is Economics ?
There are 4 main definitions of Economics:
• Wealth Definition: “Economics as a science
which inquired into the nature and cause of
wealth of Nations” (Adam Smith, the Wealth of
Nations, 1776).
 What is Economics ?
There are 4 main definitions of Economics:
• Welfare definition: “Economics is the study of
man in the ordinary business of life” (Alfred
Marshall). It examines how a person gets his
income and how he invests it.
 What is Economics ?
There are 4 main definitions of Economics:
• Welfare definition: “Economics is the study of
man in the ordinary business of life” (Alfred
Marshall). It examines how a person gets his
income and how he invests it.
 What is Economics ?
There are 4 main definitions of Economics:
• Scarcity definition: “Economics is a science
which studies human behavior as a
relationship between ends and scarce means
which have alternative uses” (Robbins).
• Economics is the study of the allocation of
scarce resources to meet unlimited human wants.
 What is Economics ?
There are 4 main definitions of Economics:
• Scarcity definition: Economics is the study of the allocation of
scarce resources to meet unlimited human wants. Economics
examines how people use their scarce resources to satisfy their
unlimited wants.
• NEEDS: are the basic necessities that a person must have in
order to survive e.g. food, water, warmth, shelter and clothing
• WANTS: are the desire that people have e.g. things that people
would like to have, such as bigger homes, iPhone, etc.
 What is Economics ?
There are 4 main definitions of Economics:
• Growth definition: “Economics is the study of how man
and society choose with or without the use of money to employ
the scarce productive resources, which have alternative uses, to
produce various commodities over time and distributing them
for consumption, how or in the future among various person or
groups in society” (Paul. A. Samuelson). It analyses costs and
benefits of improving patters of resource allocation.”
PROBLEM OF
ECONOMIES
 PROBLEM OF ECONOMIES

What to produce?
• A country cannot produce all goods
because it has limited resources.
• It must make a choice between
different goods and services.
• Every economy must decide what
goods and services should be
produced.
 PROBLEM OF ECONOMIES

How to produce?

• How goods will be produced.

• The problem arises because of unavailability of
some resources.
• It also involves the choice of technique of
production.
 PROBLEM OF ECONOMIES

How to produce?

• A country may produce by labor intensive

methods or by capital intensive methods of
production, depending upon its stock or man
power.
 PROBLEM OF ECONOMIES

For whom to produce?

• Goods and services are produced
for people who have the means to
pay for them.

• A country may produce mass consumption goods at

a large scale or goods for upper classes.
• All it depends upon the policies of the government
as well as private producing units.
• Mass consumption: is the purchase of products or
services by large numbers of customers.
Fundamental WEALTH
Economic By wealth we mean the stock
Concepts of goods under the ownership
of a person or a nation.

Personal wealth
National wealth
Fundamental WEALTH
Economic Personal wealth
Concepts • It means the stock of all
goods like houses and
buildings, furniture, land,
money in cash, money kept
in banks, clothes, company
shares, stocks of other
commodities, etc. owned by
a person.
Fundamental WEALTH
Economic Personal wealth
Concepts • Health, goodwill, etc., can
also be parts of an
individual’s wealth.
• In Economics, they are
transferable goods (whose
ownership can be
transferred to another
person).
Fundamental WEALTH
Economic National wealth
Concepts • It includes the wealth of all
the citizens of the country.
• There are public properties
whose benefits are enjoyed
by the citizens of the
country, but no citizen
personally owns these
goods.
Fundamental WEALTH
Economic National wealth
Concepts • Natural resources (mineral
resources, forest resources,
etc), roads, bridges, parks,
hospitals, public educational
institutions and public-
sector projects of various
types (public sector
industries, public irrigation
projects, etc.) are example
of public properties.
Fundamental INVESTMENT
Economic • Investment means an
Concepts increase in the capital stock.
• For a country investment is
the increase in the total
capital stock of the country.
• For an individual,
investment is the increase in
the capital stock owned by
him.
Fundamental INVESTMENT
Economic (a) Real investment: Real
Concepts investment means an increase
in the real capital stock, i.e., an
addition to the stock of
machines, buildings, materials
or other types of capital goods.
(b) Portfolio investment:
Portfolio investment essentially
means the purchase of shares
of companies.
Fundamental INVESTMENT
Economic (a) Real investment: Real
Concepts investment means an increase
in the real capital stock, i.e., an
addition to the stock of
machines, buildings, materials
or other types of capital goods.
(b) Portfolio investment:
Portfolio investment essentially
means the purchase of shares
of companies.
Fundamental INCOME
Economic The income of a person means
Concepts the net inflow of money of this
person over a certain period.
For instance, an industrial
worker’s annual income is his
salary income over the year. A
businessman’s annual income
is his profit over the year.
Fundamental SAVING
Economic • Saving is defined as income minus
consumption.
Concepts
• Whatever is left in the hands of an
individual after meeting consumption
expenditure is the individual’s saving.
• The sum-total of funds in the hands of
an individual is obtained by accumulating
the saving of the past years.
• Saving is generated out of current
income of an individual.
• Savings are created out of past income
of an individual.
Fundamental PRODUCTION
Economic • Production means “creation
Concepts of utility”.
• It also refers to creation of
goods (or performance of
services) for the purpose of
selling them in the market.
• Production must be for
selling the produced goods
(or, services) in the market.
Fundamental CONSUMPTION
Economic The consumption is defined as
Concepts the satisfaction of human
wants using goods and
services.
Fundamental A COMMODITY
Economic A commodity is any goods
Concepts produced for sale in the
market. By this definition, food
produced in the home kitchen
for consumption of the family
is not a commodity. But the
same food prepared by a hotel
for its customers' consumption
is a commodity.
Fundamental MARKET
Economic Market in Economics is more
Concepts than a geographical area where
goods are bought and sold.
It means all the areas in which
buyers and sellers are in
contact with each other for the
purchase and sale of the
commodity.
Thus, a commodity may have a
local, a regional, a national or
even an international market.
MICROECONOMICS AND
MACROECONOMICS
MICROECONOMICS
 • Microeconomics is the branch of
MICROECONOMICS
economics that focuses on the choices
made by individual decision-making units
in the economy - typically consumers and
firms - and the impacts those choices
have on individual markets.
• Microeconomics studies the economic
behavior of individual economic units.
• The study of economic behavior of the
households, firms and industries form the
subject-matter of microeconomics.
 • It examines whether resources are
MICROECONOMICS
efficiently allocated and spells out the
conditions for the optimal allocation of
resources to maximize the output and
social welfare.
• For example, microeconomics is
concerned with how the individual
consumer distributes his income among
various products and services so as to
maximize utility.
MACROECONOMICS
• Macroeconomics is the branch of
economics that focuses on the impact of

MACROECONOMICS
choices on the total, or aggregate, level
of economic activity.
• Macroeconomics deals with the
functioning of the economy as a whole.
• For example, macroeconomics seeks to
explain how the economy’s total output of
goods and services and total employment
of resources are determined and what
explains the fluctuation in the level of
output and employment.
 MACROECONOMICS
• It deals with the broad economic issues,
such as full employment or
unemployment, capacity or under
capacity production, a low or high rate of
growth, inflation or deflation.
• It is the theory of national income,
employment, aggregate consumption,
savings and investment, general price
level and economic growth.
Interdependence
between
Microeconomics
and
Macroeconomics
 Interdependence between
Microeconomics and Macroeconomics
• Microeconomic analysis and Macroeconomic
analysis are complementary to each other;
• The basic goal of both the theories is same: the
maximization of the material welfare of the nation.
• From the microeconomic point of view, the nation’s
material welfare will be maximized by achieving
optimal allocation of resources.
• From the macroeconomic point of view, the nation’s
material welfare will be maximized by achieving full
utilization of productive resources of the economy.
ECONOMIC GROWTH
ECONOMIC GROWTH

• The economic growth of

a country is the increase
in the market value of
the goods and services
produced by an
economy over time.
ECONOMIC GROWTH
• Economic growth is measured by the
increase in a country’s total output or Gross
Domestic Product (GDP) or Gross National
Product (GNP).
• The Gross Domestic Product (GDP) of a
country is the total value of all final goods
and services produced within a country over
a period of time. Therefore, an increase in
GDP is the increase in a country’s production.
ECONOMIC GROWTH

Why is
Economic
Growth
Important?
ECONOMIC GROWTH
• Economic growth is one of the most important
indicators of a healthy economy.
• One of the biggest impacts of long-term growth
of a country is that it has a positive impact on
national income and the level of employment,
which increases the standard of living.
• As the country’s GDP is increasing, it is more
productive which leads to more people being
employed.
ECONOMIC GROWTH
• This increases the wealth of the country and its
population.
• Higher economic growth also leads to extra tax
income for government spending, which the
government can use to develop the economy.
Six Factors That Affect Economic
Growth
 Six Factors That Affect Economic
Growth
The follow six causes of economic growth are key
components in an economy. Improving or increasing
their quantity can lead to growth in the economy:
• Natural Resources: The discovery of more natural
resources like oil, or mineral deposits may boost
economic growth as this shift or increases the
country’s Production Possibility Curve. Other
resources include land, water, forests and natural
gas.
 Six Factors That Affect Economic
Growth
The follow six causes of economic growth are key
components in an economy. Improving or increasing
their quantity can lead to growth in the economy:
• Physical Capital or Infrastructure: Increased
investment in physical capital such as factories,
machinery, and roads will lower the cost of
economic activity. Better factories and machinery
are more productive than physical labor. This
higher productivity can increase output.
 Six Factors That Affect Economic
Growth
The follow six causes of economic growth are key
components in an economy. Improving or increasing
their quantity can lead to growth in the economy:
• Population or Labor: A growing population means
there is an increase in the availability of workers
or employees, which means a higher workforce.
One downside of having a large population is that
it could lead to high unemployment.
 Six Factors That Affect Economic
Growth
The follow six causes of economic growth are key
components in an economy. Improving or increasing
their quantity can lead to growth in the economy:
• Human Capital: An increase in investment in
human capital can improve the quality of the
labor force. This would result in an improvement
of skills, abilities, and training. A skilled labor
force has a significant effect on growth since
skilled workers are more productive.
 Six Factors That Affect Economic
Growth
The follow six causes of economic growth are key
components in an economy. Improving or increasing
their quantity can lead to growth in the economy:
• Technology: Another influential factor is the
improvement of technology. Technology could
increase productivity with the same levels of
labor, thus accelerating growth and development.
This means factories can be more productive at
lower costs. Technology is most likely to lead to
sustained long-run growth.
 Six Factors That Affect Economic
Growth
The follow six causes of economic growth are key
components in an economy. Improving or increasing
their quantity can lead to growth in the economy:
• Technology: Another influential factor is the
improvement of technology. Technology could
increase productivity with the same levels of
labor, thus accelerating growth and development.
This means factories can be more productive at
lower costs. Technology is most likely to lead to
sustained long-run growth.
 Six Factors That Affect Economic
Growth
The follow six causes of economic growth are key
components in an economy. Improving or increasing
their quantity can lead to growth in the economy:
• Law: An institutional framework which regulates
economic activity such as rules and laws. There is
no specific set of institutions that promote
growth.
 Factors
that Limit
Economic
Growth
Poor health and low levels of
education
• People who don’t have
access to healthcare or
education have lower levels
of productivity.
• This means the labor force
is not as productive as it
could be. Therefore, the
economy does not reach
the productivity it could
otherwise.
 Lack of necessary
infrastructure
• Developing nations often
suffer from inadequate
infrastructures such as
roads, schools, and
hospitals.
• This lack of
infrastructure makes
transportation more
expensive and slows the
overall efficiency of the
country.
 Flight of
Capital

• If the country is not delivering the returns

expected from investors, then investors will
pull out their money.
• Money often flows out the country to seek
higher rates of returns.
 Political instability in the
Political
government scares investors Instability
and hinders investment.
 Types of Economic Growth
There are primarily four types of economic
growth:
• Boom and Bust Business Cycles: If economic
growth is high-speed and inflationary, then the
level of growth will become unsustainable.
 Types of Economic Growth
There are primarily four types of economic
growth:
• Export-led: The Japanese and Chinese
economy have experienced export-led growth
thanks to a high current account surplus.
• This is because they have significantly more
exports than imports.
 Types of Economic Growth
There are primarily four types of economic
growth:
• Commodity exports: These economies are
dependent on their natural resources like oil or
iron ore.
• For example, Saudi Arabia has a had a very
prosperous economy thanks to their oil exports.
However, this can cause a problem when
commodity prices fall, and there aren’t other
industries to balance things out.
 Types of Economic Growth
There are primarily four types of economic
growth:
• Consumer: The US economy is dependent on
consumer spending for economic growth.
• As a result, they also have a higher current
account deficit.
 Costs of Economic
Growth
There are two problems associated
with the economic growth:
• Environmental Costs: Pollution and
other negative externalities often
accompany increased production Costs of
or increased economic growth.
• Economists usually associate
Economic
an adverse impact on the Growth
environment with rapid growth in
developing economies.
 Costs of Economic
Growth
There are two problems associated
with the economic growth:
• Rising Income Inequality:
Growth often leads to increased
income inequality.
Costs of
• Those not involved or related to
the growth-generating sector of Economic
the economy get left behind. Growth
Usually, the rural population
suffers the most.
Q1) Economics is the study of:
A. Production methods.
B. How societies manage their
scarce resources.
C. How households decide who
performs which tasks.
D. The interaction of business and
government.
Q2) The phenomenon of scarcity
stems from the fact that:
A. Most economies’ production
methods are not very good.
B. In most economies, wealthy
people consume disproportionate
quantities of goods and services.
C. Governments restrict production
of too many goods and services.
D. Resources are limited.
Q3) Study of small units of an
economic system is called?
A. Microeconomics.
B. Macroeconomics.
C. Monetary Economics.
D. Industrial Economics.
Q4) ……is the study of how limited
resources are used to satisfy
unlimited wants.
A. Economics
B. Macroeconomics
C. Microeconomics
D. History
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