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Chapter 1 The Basic Concept of Economics POE Ny
Chapter 1 The Basic Concept of Economics POE Ny
ECONOMICS
LAW SIONG HOOK & MOHD NASEEM NIAZ AHMAD
Principles of Economics | 1
Learning Outcomes
• Describe the scarcity of resources.
• Explain the difference between needs and wants, and how both are important
in understanding resource limitations and allocations.
• Identify the various economic agents in any society.
• Explain the difference between microeconomics and macroeconomics, and
provide examples of each of these divisions of economics.
• Discuss how economics choices are made in society, and the role of government
in facilitating those choices.
• Discuss the factors of production, and how these factors work together in the
overall economy.
• Identify and give examples of positive and normative economics.
Principles of Economics | 2
DEFINITION OF ECONOMICS
• There is no single definition of the term “Economics” that is globally
accepted:
• Economics – social science that studies the choices of different economic
agents in particular and society in general from the available scarce resources
and the incentives that influence and reconcile those choices.
Principles of Economics | 6
OPPORTUNITY COST
• Opportunity cost
Principles of Economics | 7
DIVISIONS OF ECONOMICS
• Microeconomics
• the study of choices that individuals and businesses make, the way those
choices interact in markets, and the influence of governments.
Principles of Economics | 8
DIVISIONS OF ECONOMICS
• Macroeconomics
Principles of Economics | 9
THREE MAIN ECONOMIC CHOICES
• There are 3 main issues of economics, involving what, how & for whom goods and
services should be produced.
Principles of Economics | 10
THREE MAIN ECONOMIC CHOICES
•How Should It Be Produced?
• Land: This refers to the “gift of nature” – fixed and limited => enables
countries to enhance the production processes for transforming natural
resources into real consumer goods.
• Though some natural resources are include timber, food and animals,
which are renewable, physical land is usually a static resource in nature.
Principles of Economics | 11
THREE MAIN ECONOMIC CHOICES
•How Should It Be Produced?
• Unlike land, labor is mobile, as it can move from one industry to another
or from one location to another. Training and development, especially
related to education, are important elements of promoting the level of
human capital in an economy.
Principles of Economics | 12
THREE MAIN ECONOMIC CHOICES
•How Should It Be Produced?
• Capital: This refers to financial resources used to acquire other factors of
production required for the production process.
Principles of Economics | 13
THREE MAIN ECONOMIC CHOICES
•How Should It Be Produced?
• Entrepreneurs: These are the owners of the business or the persons who
coordinate the overall economic activities of a company.
Principles of Economics | 14
THREE MAIN ECONOMIC CHOICES
• For Whom Should It Be Produced?
• This it relates to where the goods produced will end up, as such goods and
services will be used by consumers in the society or exported to other
countries.
Principles of Economics | 15
THE ECONOMIC WAY OF THINKING
• Self-interest:
Principles of Economics | 16
THE ECONOMIC WAY OF THINKING
• Social interest:
Principles of Economics | 17
POSITIVE VS NORMATIVE
ECONOMICS
• Positive economics:
• mainly relies on objective arguments; and can be tested scientifically and supported
with facts.
• Normative economics
• expresses an opinion and cannot be tested.
• => ‘what ought to be”
Principles of Economics | 18
ECONOMIC COORDINATION
•Circular Flows Through Markets
• illustrates how households and firms interact in the market economy.
Principles of Economics | 19