INTRODUCTION TO ECONOMICS

BS-IT 5TH SEMESTER

TEACHERS NAME: FIZZA SHAUKAT
LECTURE 2
FUNDAMENTAL PROBLEM OF ECONOMICS

Scarcity
• Limited resources
• Unlimited wants
• Choices (alternative uses)

Scarcity refers to the basic Economic problem, the gap between limited – that

is, scarce – resources and theoretically limitless wants.
 TRADE OFF

Sacrifice has been made to get a certain product.

Scarcity + unlimited wants and needs+ limited resources it makes Trade-off

Trade-off is commonly expressed in terms of the opportunity cost of one potential

choice, which is the loss of the best available alternative.
Trade-off are the options we give up, so as to obtain a particular product, experience or
services that we want (depends on preferences).
 OPPORTUNITY COST

What have you give up when you got something.

It is the cost of opting one course of action and foregoing another opportunity.

Opportunity costs represent the potential benefits an individual, investor, or

business misses out on when choosing one alternative over another. 
 ECONOMIC SYSTEM

• .
• In economy, there are scarce resources but cannot be avoided
,
We make choices

. How resources are to be used

3 basic question Arises:
1. What to produce?
2. How to produce?
3. For whom to produce?
Th answer the basic question, we need economic system
• An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within
a society or a given geographic area.
• Setup under which a Society runs
 Economics System

Capitalism Socialism Communism

private Mixed Public

sector economy sector
 CAPITALISM

• Capitalism is an economic system in which private individuals or businesses

own capital goods.
• Factors of production are in private hands like USA (America, Japan etc)

• Prices are set by market competition in a capitalist economy.

• Profit motive
• Choices for both(consumers and producers)
 COMMUNISM

• Communism is a political and economic system that seeks to create a

classless society in which the major means of production, such as mines and
factories, are owned and controlled by the public.

• In a communist economy, the factors of production are owned by the government.

• Controlled by planning authority
• Welfare motive
 SOCIALISM/MIXED ECONOMY

• A mixed economic system is a system that combines aspects of both

capitalism and socialism. A mixed economic system protects private property
and allows a level of economic freedom in the use of capital, but also allows for
governments to interfere in economic activities in order to achieve social aims.