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Basic Concepts of Economics
Basic Concepts of Economics
Basic Concepts of Economics
Part 1: The
Basics
WHAT IS ECONOMICS???
Economics – the study of how individuals
and societies make decisions about how
to use scarce resources to fulfill wants
and needs.
What does THAT mean?!!??!!
What are resources?
Definition: The things used to make other
goods
BUT,there’s a
Fundamental
Problem:
SCARCITY: unlimited wants
and needs but limited
resources
Choices, Choices
OPPORTUNITY COST =
If I buy a Then I
pizza… can’t afford
the
movies…
Consumer Goods:
final products that are
purchased directly
by the consumer
CHANGES IN PRODUCTION
Specialization –
dividing up production
so that Goods are
produced efficiently
Hardee’s makes
hamburgers,
not shoes!!
Division of Labor –
different people
perform different jobs
You do your
to achieve greater job, and I will
efficiency (assembly do my Job and
we will be
line). more
EFFICIENT
CHANGES IN PRODUCTION
Consumption – how
much we buy
(Consumer
Sovereignty)
The DELL store is
empty
because….
Everyone is at the
APPLE STORE!!!
CHANGES IN PRODUCTION
If we INCREASE land, labor, capital we
INCREASE production
–
Many entrepreneurs invest profit back into production
GDP
The total peso value of ALL final Goods and
Services
produced in a country in a year.
(GROSS DOMESTIC PRODUCT)
Part 2: Costs and Revenues
Costs and Revenues
Cost – the total
amount of money it
takes to produce an
item (to pay for
ALL Factors of
Production).
Costs and Revenues
Margin=Extra
Space
Costs and Revenues
Profit – the difference
between Total Costs
and Revenues.
This is WHY you’re
in BUSINESS (Profit
Motive!)
– Profit=Revenues-Total cost
For Example
Microeconomics
– How do individuals make
economic decisions
Concerns of Economics
?
Economics as a Science
● Is a science because it is an organized body of
truth, coordinated, arranged and systematized
with reference to certain general laws and
principles.(Observation, Formulation of theories, Gathering of
data, Experimentation, Conclusion, Generalization)
● Economic analysis seeks to explain economic
events using some kind of logic based on a set
of systematic relations.
● It is a social science because the subject
matter of economics is people or societies and
their behavior, unpredictable in nature.
Relations of Economics to other
Sciences
MATHEMATIC
S
NATURAL
POLITICS SCIENCE
ECONOMICS
ETHICS/ SOCIOLOGY
RELIGION
HISTORY GEOGRAPHY
Why Are We Studying Economics
?
Essence of Studying Economics