ECONOMICS

STUDY RESOURCES, WEALTH

CREATION, AND THE PRODUCTION,
DISTRIBUTION, AND CONSUMPTION OF
GOODS AND SERVICES TO MEET
HUMAN NEEDS..
OBJECTIVES
• Explain the basic economic questions: What to produce? How to
produce? and How much to produce?
• Describe the factors of production.
• Explain, illustrate, and analyze production possibility curves.
Explain and illustrate a basic economic model.
• Differentiate between different rationing systems.
• Compare and contrast the advantages and disadvantages of
planned economies and free market economies.
 WHAT IS
ECONOMICS?
Is Economics a Science?

What kind of Science?

What does Economics study?

It is a social science that deals with the study of individuals in society and
how they interact with each other. It studies rationing systems, how scarce
resources are allocated to satisfy consumers' infinite needs.

Earth is finite, and there are LIMITED resources. Resources are used
to produce goods and services that will be consumed by all
individuals (needs or desires)
 WHAT IS
ECONOMICS?
It is a social science that deals with the study of individuals in society and
how they interact with each other. It studies rationing systems, how scarce
resources are allocated to satisfy consumers' infinite needs.

Earth is finite, and there are LIMITED resources. Resources are used
to produce goods and services that will be consumed by all
individuals (needs or desires)

Goods: Tangible objects that can be touched.

Services: Intangible things that cannot be touched but provide
What is the different between goods and
well-being to the individuals who consume them. services?

The needs and desires of individuals are INFINITE. Needs are things What is a need? And a desire?
we must have to survive. Desires are things we would like to have but
are not necessary for our physical survival

People cannot have everything they desire, and that's

why there must be a system to ration scarce resources
SCARCITY

ALL GOODS AND SERVICES PRICE IS USED TO RATION THE

THAT HAVE A PRICE ARE UNITS OF AVAILABLE GOODS
RELATIVELY SCARCE. THIS AND SERVICES.
MEANS THEY ARE SCARCE IN
RELATION TO INDIVIDUALS'
DEMAND.
SCARCITY
EXERCISE 1

1. Make a list of four of your own needs.

2. Make a list about what your parents may have needed when they
were your age.
3. Explain the reasons of the differences between 1 and 2.
4. Make a list of the needs of a person of your age in China.
5. Explain the differences between 1 and 4.
 ü According to the previous

SCARCITY excersise (my needs and

desires, my parents needs
and a chinese teenager)
What are the differences?

The differences in these lists

stem from various reasons
like life stage, culture,
environment, and personal
priorities. Parents might
focus more on family
ALL GOODS AND SERVICES PRICE IS USED TO RATION THE
THAT HAVE A PRICE ARE UNITS OF AVAILABLE GOODS
security and well-being,
RELATIVELY SCARCE. THIS AND SERVICES. while a teenager might be
MEANS THEY ARE SCARCE IN more oriented towards
RELATION TO INDIVIDUALS' socialization and current
DEMAND.
trends. Additionally,
geographical and cultural
differences also influence
what is considered essential
or desirable on a list.
CHOICE

People do not have infinite

incomes.

They always have to choose

between the alternatives that
are presented.

They must decide how to

allocate their limited
financial resources.
 The next best
alternative
that is forgone
when making
an economic
What kind of Opportunity cost can have a decision.
country’s government?
Give 2 examples.

give up ou
to
at y

ing
have
someth
It is wh

else.
Opportunity cost is
never expressed in
OPPORTUNITY monetary terms.

COST
 The next best
alternative
that is forgone
You live completely isolated and alone on an when making
island. Imagine a good or an activity that an economic
would have no opportunity cost for you in decision.
this situation. What could that good or
activity be, and why do you consider it
would have no opportunity cost?

give up ou
to
at y

ing
have
someth
It is wh

else.
Opportunity cost is
never expressed in
OPPORTUNITY monetary terms.

COST
 The next best
alternative
that is forgone
What is a Free Good? There is not when making
scarcity of a good, so everybody can an economic
have as much of the good as they decision.
want.

¿Can you give an example?

give up ou
to
at y

ing
have
someth
It is wh

else.
Opportunity cost is
never expressed in
OPPORTUNITY monetary terms.

COST
ECONOMIC BASIC PROBLEM Imagine that you have $1,000,000 and
you want to want to start a business,
and you do not know what kind. What 3
questions do you need to figure out
what to do.

What should be produced and in what

quantities? With these scarce resources.

There are many different ways of

How should things be produced? producing things, and there are
different combinations of resources
that can be used in production.

Should they go to those who can

For whom should things be produced? afford them or be distributed in
some 'fair' manner? How will the
total income (national income) of
the economy be distributed?
Differences between Microeconomics and
Macroeconomics
How firms make
decisions of Small agents, such as
production, producer and
increasing the consumers, make
Efficiency decisions to Change
in the Dynamic World
MICROECONOMICS

How Government
Intervention affects
producers
People make choice to buy
goods and services in order to
improve Well-Being
Differences between Microeconomics and
Macroeconomics

Interest
Well-Being

Taxes MACROECONOMICS

Unemployment

Inflation / Deflation
The 9 KEY concepts
FACTORS OF PRODUCTION

WHERE? WHO? HOW? HOW?

(THINGS) (PEOPLE)
FACTORS OF PRODUCTION

LAND LABOUR CAPITAL ENTREPRENEURSHIP

Natural resources Human effort, with Manufactured The management
used in the physical and resources, such and organization of
production mental abilities as machinery other factors of
process, including required in the and vehicles production.
renewable production used for
energies. process. production.
FATORS OF PRODUCTION RETURN

Land Labour Capital Entrpreneurship

RENT WAGES INTEREST EARNS OR UTILITIES
 PPC (PRODUCTION POSIBILITIES CURVE)

UNATTAINABLE.
Y The society does not
possess the necessary
Schools resources.

• Scarcity
EFFICIENCY:
Society
maximizes the
use of its
resources • Choice
• Opportunity cost
INEFFICIENCY:
Society is producing • Efficiency
below its possibilities.

X
Cars
 PPC (PRODUCTION POSIBILITIES CURVE)
The Production Possibility Curve (PPC) illustrates
the maximum combinations of goods and services
that an economy can produce in a given time period
Y
UNATTAINABLE.
Schools The society does not
possess the necessary
resources. If all the resources of the economy are used fully
EFFICIENCY: and efficiently, and the state of technology remains
Society constant
maximizes the
use of its
resources

If all production is dedicated to building schools, at

point Y, then the quantity Y of schools will be
INEFFICIENCY: produced, and no cars will be produced.
Society is producing
below its possibilities.

Point X, at the other end of the PPC, represents the

X situation where no schools are being built, only
Cars cars.
 PPC (PRODUCTION POSIBILITIES CURVE)
Is Unattainable are really
Y
UNATTAINABLE.
The society does not
Unattainable?
Schools possess the necessary
resources.

EFFICIENCY:
Society
maximizes the
use of its
resources

INEFFICIENCY:
Society is producing
below its possibilities.

X
Cars
 PPC (PRODUCTION POSIBILITIES CURVE)

UNATTAINABLE.
Y The society does not
Schools possess the necessary
resources.

EFFICIENCY:
Society
maximizes the
use of its
resources

INEFFICIENCY:
Society is producing
below its possibilities.

X
Cars
 More
Satisfaction
Measure of Total utility:
satisfaction and
total satisfaction
pleasure that an
obtained from
UTility – Mg Utility

individual receives
consumption.
when consuming a
product.

Marginal utility: the

satisfaction The marginal utility
obtained from of consumption
consuming one decreases as
more unit of a quantities increase
product.

satisfaction
Less
UTility – Mg Utility

Less More
satisfaction Satisfaction
 The wealthy industrialist from the North was horrified
when he saw a fisherman from the South calmly leaning
against his boat and smoking a pipe. "Why haven't you
gone out fishing?" the industrialist asked. "Because I've
already caught enough fish today," the fisherman replied.

BE A THINKER "And why don't you catch more than you need?" the
industrialist insisted. "And what would I do with it?" the
fisherman in turn asked. "You would earn more money,"
a. Who do you identify with was the response. "That way, you could put a motor on
your boat.
more, the fisherman or the
industrialist? Explain your
answer. Then you could go to deeper waters and catch more fish.
Then you would earn enough to buy nylon nets, which
b. Who do you think lives better, would get you more fish and more money. Soon, you
the one with more resources or could earn enough to have two boats... and even a whole
the one with fewer needs? fleet. Then you'd be rich, like me." "And what would I do
then?" the fisherman asked again. "You could sit back
and enjoy life," the industrialist answered. "And what do
you think I'm doing right now?" the contented fisherman
responded.
THE TWO-SECTOR CIRCULAR FLOW OF INCOME
MODEL
THE FOUR-SECTOR CIRCULAR FLOW OF INCOME
MODEL
What is the circular
flow of income
diagram and how
does it illustrate the
workings of a
modern economy?
THE CIRCULAR FLOW OF INCOME MODEL
RATIONING SYSTEMS.

PLANNED
ECONOMY

FREE MARKET
ECONOMY
COMMAND ECONOMY

WHAT TO State: Who

PRODUCE? makes the
decisions.

State: Distributes
PLANNED HOW TO
according to the
PRODUCE?
needs of society.

Public
FOR WHOM TO enterprises:
PRODUCE? Fulfill objectives.
FREE MARKET ECONOMY
WHAT TO Consumer
PRODUCE? sovereignty
principle.

FREE MARKET HOW TO Profit principle.

PRODUCE?

FOR WHOM TO Scarcity

PRODUCE? principle.
 BE A THINKER
• The NGO "Jóvenes sin Fronteras" has a budget of
$10,000,000 to carry out its activities for the year
2019.
• Among its projects, it's worth noting: funding the
education and support of five young individuals
from the Cauca region ($8,000,000); purifying the
water in one of the communities ($2,000,000), and
constructing a road between the rural area and a
nearby city ($2,000,000).
a. Given these alternatives and the limited
resources available, the decision-makers must
determine which projects to select. Which one
would you choose and why?
b. b. Find other real-life situations where these two
elements are present: making a selection due to
scarcity.
1. Explain the idea of Opportunity Cost
[10 marks]
1. Explain the idea of Opportunity Cost
[10 marks]