Nature of Economics

An Introduction

Definition of economics
The study of how individuals and societies use limited resources to satisfy unlimited wants.
The proper allocation and efficient use of available

resources for the maximum satisfaction of human wants.

The study of how choices are made & coordinated

Definition of economics
Greek word oikanomia meaning household

management.

Economic resources
land
natural resources, the free gifts of nature

labor
the contribution of human beings

capital
plant and equipment this differs from financial capital

entrepreneurial ability

foreign exchange
The dollar and dollar reserves the economy has

Resource payments
Economic Resource land labor capital entrepreneurial ability Resource payment rent wages interest profit

Five Major Division of Economics

Production

Distribution
Exchange

Consumption
Public Finance

Production
This refers to the process of producing or creating

goods needed by the households to satisfy their needs.

Factors of production = INPUT Goods and services created = OUTPUT

Distribution
This refers to the marketing of goods and services to

different economic outlets for allocation to individual consumers.

In monetary terms, this is the allocation of income

among persons or households.

Exchange
This is a process of transferring goods and services to a

person or persons in return for something.

At present, the medium of exchange used in market is

MONEY.

This means, we can exchange our money with goods and services.

Consumption
This refers to proper utilization of economic goods.

However, goods and services could not be utilized unless you pay for it.
We can also say that consumption is spending money for goods and services in order to yield direct satisfaction.

Public Finance
This pertains to the activities of the government

regarding taxation, borrowings, and expenditures.

It deals with the efficient use and fair distribution of

public resources in order to achieve maximum social benefits.

This means government projects and programs which

are funded by taxes and loans are properly implemented and managed to generate maximum and optimum benefits for all members of society.

Branches of Economics
Macroeconomics

Microeconomics

Macroeconomics
It deals with the economic behavior of the whole

economy or its aggregates such as government, business and households.

an aggregate is composed of individual units.

The operation of various aggregates and their

interrelationship is analyzed to provide a profile of the economy as a whole.

Macroeconomics
Is concerned with topics like
Gross national product Level of employment National income

General level of prices

Total expenditures Etc.

Also known as the employment and income analysis

Microeconomics
It deals with the economic behavior of an individual

units such as the consumers, firms, and the owners of the factors of production.
Such specific economic units constitute a very small

segment of the whole economy.

Their activities are presented and discussed in details

SCOPE
MICROECONOMICS
The study of the

MACROECONOMICS
The study of the

decisions and interactions of individual people & businesses, & the effects of government regulation & taxes on prices & quantities of goods & services.

national economy & the global economy, the way that overall economic variables fluctuate & grow, & the effects of government actions on them.

What is Economic System?

It means the organization of economic society with

reference to the production, exchange, distribution and distribution of wealth.

It is the way the economic units are organized to make

decisions on the economic problems of the society.

Basic Economic Problem

scarcity. individuals and societies must choose among available

alternatives.

 Scarcity

Scarcity
Peoples wants are greater than the economys ability to produce desirable goods & services

scarcity
scarce (limited) resources unlimited wants (always want more)

Scarce Resources + Unlimited Wants = Choice

Example of scarcity
A homeless man who wants to eat but

cannot, faces scarcity

A university student who wants to own a

Mustang convertible but cannot, faces scarcity

A millionaire who wants to be Prime

Minister but cannot, faces scarcity (only one spot available)

Every economic system is faced with the following problems:

What to produce? How to produce? How much to produce?

For whom shall goods and services be produced?

What to produce?
The system must determine the desires of the people.

Goods and services to be produced are based on the

needs and wants of the consumers.

Take into considerations the following:
Availability of resources Physical environment

Customs and traditions of the people

How much to produce?

The system must know how much of the chosen goods

should be produced.
It must determine how many of these buyers are

willing to buy the goods and services produced by the economy.

Peoples taste and preference plays a major factor in

determining production.

How to produce?
Equally important is the systems task of selecting the

proper combination of economic resources in producing the right amount of output.

Through several combinations of resources, goods are

produced.
A clear knowledge of manipulating the different

factors of production helps a lot in coming up with the desired output.

Quality of output must come first before quantity.

For whom shall the goods and services be produced?

It has something to do with problems of distribution.

Once the goods are produced how shall they be distributed?

Scarcity

CHOICES

1.)What do we do with our scarce resources? 2.)How do we make the best use of our resources? (Efficiency) 3.)For Whom will things be produced? (Who will get what is available?) (Equity)