Introduction to Economics

by

M. Tetteh
THE NINE ECONOMICS CONCEPTS

ACRONYM

WISE ChoICES
THE NINE ECONOMICS CONCEPTS

W - Economic well-being
I - Interdependence
S - Scarcity
E - Efficiency
 
Cho - Choice
I - Intervention
C - Change
E - Equity
S - Sustainability
Define the nine central concepts
Scarcity: It is the idea that
resources are insufficient to satisfy
unlimited human needs and wants.
Choice: The ability of a consumer
or producer to decide which good,
service or resource to purchase or
provide from a range of possible
options.
SOCIAL SCIENCE: It is the study of people in
society and how they interact with each other

Definitions of economics as a social science: The

scientific study of the choices made by individuals
and societies in regard to the alternative uses of
scare resources that are employed to satisfy wants.

Examples:
 Sociology
 Political science
 Psychology
 Anthropology
 History
 GOODS AND SERVICES
GOODS: They are physical objects that are
capable of being touched (tangible)
Examples: Vegetables, motorcars, etc

SERVICES: They are intangible things that

cannot be touched
Examples: Motor repairs, hair cuts, etc
 NEEDS AND WANTS
NEEDS: They are things that we must have to
Survive.
Examples: Food, shelter, clothing, etc

WANTS: Things that we would like to have but

which are not necessary for our immediate
physical survival
Examples: Mobile phone, TV, etc
 ECONOMIC GOODS AND FREE GOODS
ECONOMIC GOODS : It is a commodity in limited
supply. It has a price, and is thus being rationed

FREE GOODS :They are goods that are not

limited in supply and so do not have an
opportunity cost when they are consumed.
 We do not have to give up some thing else in order
to get that thing.
 They do not have a price and are not scarce
Examples: Air and sea water
 The fundamental
problem of economics

Scarcity and Choice

Scarcity: It is the idea that resources are
insufficient to satisfy unlimited human
needs and wants.

Choice: The ability of a consumer or

producer to decide which good, service
or resource to purchase or provide from
a range of possible options.
 SCARCITY
• Since people do not have infinite incomes,
they need to make choices whenever they
purchase goods and services.
• Not everybody who wants to buy a car can
buy it because they might not have the
money.
• The ability to buy a car is affected by the
amount of money they have and the price of
the car, so the price is used to ration the cars
that are available.
 THE CONCLUSION
If services and goods available are finite and Human
needs and wants are infinite.

• We can conclude there is a conflict between finite

resources available and infinite needs and wants.
• People can’t have everything that they desire and so
there must be some system for rationing the scarce
resources. This is where ECONOMICS come in.

ECONOMICS is a study of rationing systems. It is the

study of how scarce resources are allowed to fulfil the
infinite wants of consumers.
 THE CONCEPT OF OPPORTUNITY COST

OPPORTUNITY COST: Defined as the next

best alternative foregone when an economic
decision is made.
 Is what you give up in order to have something
else.
Example: Buy a book for $12 rather than have
a meal out, then the opportunity cost of the
book is the meal out.
 Example
A gardener decides to grow carrots on his
allotment. The opportunity cost of his carrot
harvest is the alternative crop that might
have been grown instead (e.g. potatoes).
Group Decision
Individual Should I buy a record or a revision book?
School Should we build a music block or tennis courts?
Country Should we increase police pay or pensions?
THE BASIC ECOMONICS PROBLEM
 Resources are relatively scarce
 Wants are infinite
 Choices to be made

Choices are expressed in 3 questions and

represent the basic economic problems
1. What should be produced and in what
quantity?
2. How should things be produced?
3. Who should things be produced for?
 NEEDS AND WANTS
There are three (3)reasons why wants and needs
are virtually unlimited:

 Goods eventually wear out and need to be

replaced.
 New or improved products become
available.
 People get fed up with what they already
own.
Limited Resources ( Factor of Production)
Commodities (goods and services) are produced by
using resources. The resources shown in Table 1.1

Different types of resource (factors of production)

 
Type Description Reward
Sea, land and everything that is found
Land Rent
in it e.g. natural resources
The physical and mental work of
Labour Wages
people
Physical capital: Factories, machinery,
roads, all man-made tools
Capital Interest
Human capital: Value of the workforce.
Investment in human capital through
education or improved health care
Management
All managers and organisers Profit
(Enterprise)
 PRODUCTION POSSIBILITY CURVES
 (Production possibility frontiers)
 
A production possibility curve (PPC) shows the maximum
combinations of goods and services that can be produced by
an economy in a given time period
 PRODUCTION POSSIBILITY CURVES
 (Production possibility frontiers)
  Roads

Y1
Y z1
z
w
v
X X1
Hospital

These are used by economist to show the concepts of scarcity,

choice, and opportunity cost.
 PRODUCTION POSSIBILITY CURVES
Roads Z1 is unattainable for an economy
 
as it is outside the PPC. It can only
  be achieved if the PPC itself moved
Y1
outside. Any point on the PPC
Y z1 shows potential output e.g. Point Z.
z
A PPC movement outwards
w
v represents an increase in potential
output and so a movement from Z
XX to Z1 would be a potential growth.
1 Hospital

An outward shift of the PPC can only be achieved if there is an

improvement in the quantity and or quality of factors of production
A fall in the quantity of factors of productivity would cause the PPC to
shift inwards. Due to war or natural disasters.
 PRODUCTION POSSIBILITY CURVES
 
 The diagrams below shows how some concepts can be
illustrated using a production possibilities frontier:

Efficiency - any point on the production possibilities frontier

 PRODUCTION POSSIBILITY CURVES
 
 

Opportunity cost Economic growth.

• economiceconomic
growth. growth.