Chapter 1 introduction to micro & macroeconomics 1
Download as PPT, PDF12 likes1,973 views
This document provides an introduction to economics, including key definitions and concepts. It discusses that economics involves the study of how scarce resources are used to satisfy unlimited wants. It defines different types of goods such as economic goods, free goods, public goods, and private goods. It also explains the economic concepts of scarcity, choice, opportunity cost, and uses a production possibilities curve model to illustrate scarcity and tradeoffs between producing different goods.
Chapter 1 introduction to micro & macroeconomics 1
- 2. 2 INTRODUCTION TO ECONOMICSINTRODUCTION TO ECONOMICS CHAPTER 1
- 3. . . . The word economy comes from a Greek word for “one who manages a household.” • The study of how scarce, or limited, resources are used to satisfy unlimited wants and needs. • The study of how people make decision in a world of scarcity. Economy. . .
- 5. © 2007 Thomson South-Western ECONOMICS RESOURCES & FACTORS © 2011 Cengage South-Western
- 6. © 2007 Thomson South-Western Types of goods 1)ECONOMICS GOODS Supply is limited Involves price and opportunity cost Divided into two: a)Consumer goods gives satisfaction to customers -Long lasting- Radio, car - Not long lasting(perishable) – Food, fruits
- 7. © 2007 Thomson South-Western • Capital goods -To produce other goods – machinery, factory 2) FREE GOODS From nature and can be obtained without cost Unlimited supply so there is no price and the opportunity cost is zero. Essential to human e.g air and water. There is some cost involved because of pollution.
- 8. © 2007 Thomson South-Western 3)PUBLIC GOODS Owned by the government, paid from tax payers’ money e.g. public road, light house. Everyone can use them and we cannot exempt anyone from using them. 4)PRIVATE GOODS Owned by individual or companies. Others get to use them if they pay or allowed by the owner e.g:House, car,highway
- 9. © 2007 Thomson South-Western SUMMARY ECONOMICS GOODS FREE GOODS PUBLIC GOODS SUPPLY Private sector Nature Government PRICE/COST √ X X OPPORTUNITY COST √ X √ EXAMPLE
- 10. © 2007 Thomson South-Western WHAT IS SCARCITY? • The limited/scarce products and services that can be produced to satisfy the unlimited needs/desires of humans. • This problem comes about due to the limited economic resources.
- 11. © 2007 Thomson South-Western WHAT IS CHOICE? • The problem of scarcity leads to choice. • Humans should make a choice between products and services that are needed and also decided on current or future consumption. • The consumer will make the efficient/effective choice in order to maximize their satisfaction. • The producer will make choices or decisions to produce products and services using the limited resources in order to maximize their profits.
- 12. © 2007 Thomson South-Western WHAT IS OPPORTUNITY COST? • Choice will lead to opportunity cost. • Second best product or services that we let go in order to obtain the best product or services. • E.g: We assume the government has RM2 million to build either a hospital or a school. If the government use the money to build a school, the opportunity cost would be the hospital. • It exist due to the scarcity of resources.
- 13. © 2007 Thomson South-Western • Decisions require comparing costs and benefits of alternatives. • Whether to go to college or to work? • Whether to study or go out on a date? • Whether to go to class or sleep in? • The opportunity cost of an item is what you give up to obtain that item.
- 14. © 2007 Thomson South-Western PRODUCTION POSSIBILITIES CURVE (PPC) • PPC is used to explain scarcity, choice and opportunity cost. • PPC shows the various possible combinations of goods produces within a specific time with given resources and technology. • Assumption of PPC: 1) There are only two goods. 2) Factors of production cannot be further increased. 3)Level of technology is fixed and stagnant. 4)The economy has achieved maximum efficiency (full employment)
- 15. © 2007 Thomson South-Western Example: A country produces milk powder and bottle making machines. Milk powder is a consumer good whereas the bottle making machine is capital good. PRODUCTION POSSIBILITY MILK POWDER (‘000 KG) BOTTLE MACHINE (UNIT) A 15 0 B 14 1 C 12 2 D 9 3 E 5 4 F 0 5
- 16. © 2007 Thomson South-Western Milk powder Bottle Machine
- 17. © 2007 Thomson South-Western EXPLAINATION OF PPC ON THE PPC • Points A to F are the best possible combinations of resources to enable full utilization and to ensure the country is at full employment. • If all the resources are used to produce milk powder only , 15,000 kg of milk bottle will be produced. • If all resources are used to produce bottle machine only, 5 bottle machines will be produced. • Points A to F shows choice.
- 18. © 2007 Thomson South-Western INSIDE THE PPC • Any point inside the PPC is attainable (Point Y) • Attainable means it is possible to produce both the goods. • Points inside PPC show wastage of resources because the production has not reached its maximum capacity.
- 19. © 2007 Thomson South-Western OUTSIDE PPC • Any point outside the PPC is unattainable (point Z) • Unattainable means it is not possible to produce both the goods. • points outside PPC show scarcity where the country is unable to meet production due to limited resources and technology.
- 20. © 2007 Thomson South-Western