NORTON UNIVERSITY

PRINCIPLE OF ECONOMICS

Lecturer: An Thina, MBA

E-mail: an_thina@yahoo.com
 Chapter I What is Economics?

Objective of this chapter:

- Define the nature of Economic Problem
- Identify the four factors of production
- Define opportunity cost
- Distinguish between the three main
kinds of decisions that are made in
Economics
I. Introduction
Economy comes from Greek word means
that “one who manage a household “.
Everyday, each household must to challenge
with many decisions.
Ex: Mr. Sok’s family, How they allocate
their member to do, and how they achieve?
- Who is assigned to be a Cooker?
- Who is assigned to be a dress washer?
 - Who makes dessert?
- Who find money?
Actually, household allocate their scarce
resource to each member base on:
- Ability
- Effort
- Desire.
Anyways, society has to challenge with these
decisions also,
- What kind of job should be produced?
- Who do this job?
1.Why study Economics?

Will describe in the class

2 . What is Economics?
- Economics study of how individuals and
nation make choices and decision about how to
use scarce resources to fill their needs and
wants.
- Economics: Is the science of choice.
3. Type of Economic System
- Traditional Economies:
- Command Economies or Planned
Economies
- Laissez-faire Economies: The (Free)
Market Economies
- Mixed Economies Market,
and Government
II- Major Economics Problem

A. Scarcity and Choice

- Scarcity: happen when people want more

than the available resource can provide.
- Scarcity: means that resource has less to
offer than people wish to have.

-Choice: involves a rational decision made

after considering all the benefits
and the opportunity costs of using
resources.
B- Unlimited want
The problem of Scarcity exists because
human have unlimited want, but
economic resource are scarce.
Needs and wants:
- Needs: are things without which we can
not live. Human needs are
limited. To live we need food,
shelter, clothing, security.
 Wants
- Wants are things which we do not have but we
would like to have. Human wants had almost
no limited. They are unlimited.
Ex: Hamburger, car, …..

- Human Wants and Needs are also called

goods and services.
Goods and Services
- Goods: are products which are bought and
sold and can be seen and touched.
Ex: Car, Book….
- Services: are also products which are
bought and sold but, unlike
goods, they cannot be touched or
seen.
Ex: Hairdressers, Car mechanics
 - Primary
goods:
Primary goods are products which come
from nature-like wood and gold. If they
are used to produce other goods, they are
called raw material
-Intermediate goods:
Intermediate goods are products which
are bought by the firms and use to
produce other goods.
Ex: paper, …
 - Final goods:
Final goods are products which are
bought by individuals for their own personal
use.
Ex: book, magazine…
- Agricultural goods:
Agricultural goods are goods come
from the land.
C- Scarce Resource
As you can see, the economic resources
available to provide people’s wants are
limited.
Economic resources are all the inputs
which are needed to product goods and
services. Economic resource are also called
factors of production.
 There are four factors of production
- Land
- Labor
- Capital
- Entrepreneurship

-Land: land includes all natural resources. In

Economics, land refer to everything that is
grown, or that in the air or the sea or under the
ground.
Ex: forest, fish, plants, raw material,
 Labor
Labor include all human resources. These
human resource may be skill, semi skill, or
unskilled.
Ex: The architects who design Soriya super
market, are skill labor. The worker who dig
the foundation for the super market to be
built, are unskilled labor.
 Capital
there are three kinds of capital
- Physical capital
- Human capital
- Financial capital
Physical Capital: means resource which have
already been produced and are used to produce
other goods and services. Ex: Factory,
machine…
Human Capital: Education and training is
called human capital. Investing in skill and
training results in the production of more goods
and services.
 Financial capital: financial capital is the
money which is used to finance the purchase
of physical capital
 Entrepreneur
- take risks of entering into
production,
- develop new way of producing ( this
is often call innovation).
- Co-ordinate the factors of
production,
 IV- Opportunity Cost
• Because resources are scarce, whenever you
make a choice you sacrifice one opportunity
for another. The cost of the opportunity which
has been sacrificed, is called the opportunity
cost. So the cost of every choice include the
cost of the opportunity which was sacrificed.
• to sum up we can say that in economics,
scarcity leads to choices, and choice lead to
opportunity cost.
Scarcity Choice O. Cost
III- A Sample Economic Model
There are three main economic decision-
makers in any economy- firm, individuals and
governments. For the moment we will assume
there are no government.
 
Individual
household

Factor of Goods and

Income Spending
Production Services


Firm
The relationship between individuals and firm
To summary then, We can say that:
- firms produce good and services and
individuals consume goods and services.
- firms use factors of production and
individual provide these factors of
production.
- firms pay wages to the individual. These
wages go back to the firms in the form of
spending on goods and services.
 - the quantity of goods and services that
individual buy depend on income which
they receive, when they provide their
factors of production to firms.
- the quantity of goods and services
which firm provide depends on the
quantity of goods and services which
individual buy.
 . A Market
A market is a place where firms and
individuals come together to buy and sell
goods and services or factor of production.

. A Product Market
Products market develop when individuals
buy the goods and services which are sold
by firms or individuals. Ex: market for
computer, apple, typing services.
 . A factor Market
factor markets develop when firm buy
factors of production from individuals. The
market for the labor is a factor market.
. Government
Individuals and the firms are not only
economics decision makers. Government-
play importance role in most economies.
Most governments take income from
individuals and firms in the form of taxes.
In return, governments provide services
like roads, national defense, education,
health.
IV- Economic decisions
Economics is the study of how these
decisions are made.
Economics look at 3 main kinds of decisions:
. Consumption decisions
Consumption decisions are about what
goods and services to spend your money on,
and how much to spend. These decisions are
known as allocation decisions because they
are about allocating scarce resources.
 . Production decisions
Production decisions are about what
goods and services to produce, How to
produce them and how much to produce.
. Distribution decisions
Distribution decisions involve choice
about who will bear the cost and who
will receive the benefits of the decision.
V- Rational Behavior
- Economics assume that the firms,
individuals and government behave
rationally.
- Rational behavior mean that, firm,
individuals and government will always
make decisions which will maximize their
benefits and minimize their cost.
VI. The Product Possibility Frontier
Will describe in the class

End