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Eco 101: Chapter 1

The document defines key economic concepts like scarcity, economic goods, resources and payments. It discusses how economics studies how individuals and societies use limited resources to satisfy unlimited wants. It also covers topics like rational self-interest, positive and normative analysis, economic methodology and assumptions.

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Abdinuur Badar Yusuf
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20 views12 pages

Eco 101: Chapter 1

The document defines key economic concepts like scarcity, economic goods, resources and payments. It discusses how economics studies how individuals and societies use limited resources to satisfy unlimited wants. It also covers topics like rational self-interest, positive and normative analysis, economic methodology and assumptions.

Uploaded by

Abdinuur Badar Yusuf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Eco 101: Chapter 1

Definition of economics
 the study of how individuals and
societies use limited resources to satisfy
unlimited wants.
 This problem of limited resources and
unlimited wants also applies to society
as a whole
Fundamental economic problem
 scarcity.
 Economists argue that the fundamental
economic problem is scarcity.
 individuals and societies must choose
among available alternatives.
Economic goods, free goods,
and economic bads
 economic good (scarce good) - the
quantity demanded exceeds the
quantity supplied at a zero price.
 free good - the quantity supplied
exceeds the quantity demanded at a
zero price.
 economic bad - people are willing to
pay to avoid the item
Economic resources
 land
 natural resources, the “free gifts of ALLAAH”
 Labor (Surface, Mine, and Air)
 the contribution of human beings
 capital
 plant and equipment
 this differs from “financial capital”
 entrepreneurial ability -ownership
Resource payments
Economic Resource Resource payment
land rent
labor wages
capital interest
entrepreneurial ability profit
Rational self-interest
 Individuals select the choices that make
them happiest, given the information
available at the time of a decision.
 self-interest vs. selfishness
Positive and normative analysis
 positive economics
 attempt to describe how the economy
functions
 relies on testable hypotheses
 normative economics
 relies on value judgements to evaluate or
recommend alternative policies.
Economic methodology
 scientific method
 observe a phenomenon,
 make simplifying assumptions and
formulate a hypothesis,
 generate predictions, and
 test the hypothesis.
Simplifying assumptions
 ceteris paribus – holding everything else
constant
 abstraction in economics (general, not
based on true situations)
 used to simplify reality
Logical fallacies
 fallacy of composition
 occurs when it is incorrectly assumed that
what is true for each and every individual
in isolation is true for an entire group.
 Fallacy (association as causation)
 occurs when one incorrectly assumes that
one event is the cause of another because
it precedes the other.
Microeconomics vs. macroeconomics
 microeconomics - the study of individual
economic agents and individual markets
 macroeconomics - the study of
economic aggregates

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