Scribd
Upload
40 views24 pages

Introduction 1.Pptx HDP

This document provides an overview of an introductory economics course. It discusses key topics that will be covered in the first chapter including the definition and scope of economics, scarcity and choice, economic systems, and the basic economic questions of what, how, and for whom to produce. The chapter introduces the different types of economic analysis and the major decision making units (households, firms, government) that interact in an economy's circular flow model.

Uploaded by

Fikedu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
40 views24 pages

Introduction 1.Pptx HDP

This document provides an overview of an introductory economics course. It discusses key topics that will be covered in the first chapter including the definition and scope of economics, scarcity and choice, economic systems, and the basic economic questions of what, how, and for whom to produce. The chapter introduces the different types of economic analysis and the major decision making units (households, firms, government) that interact in an economy's circular flow model.

Uploaded by

Fikedu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 24

Class Lecture

Course : Introduction to
Economics

Course Instructor: Tadale. F ( Msc)


Chapter one :
1.Introduction
In this chapter you will be introduced to the subject matter of

economics and the rationale that motivates us to study economics.

After successful completion of this chapter, you will be able to:


understand the concept and nature of economics;

Analyze how resources are efficiently used in producing output;

identify the different methods of economic analysis ;

distinguish and appreciate the different economic systems;



 understand the basic economic problems and how they can be

solved; and

 identify the different decision making units and how they interact

with each other


1.1. Definition of Economics
 What is the economics as your perspective?
 The definition of economics has evolved over time.
 it is under improvement mainly in areas such as:
wealth, welfare, and scarcity.
 Generally, the highlight of top Three definition of
economics includes;
General definition ‹
Wealth definition(Smiths definition )
Welfare definition(Alfred Marshalls definition )
Scarcity definition(Robbin’s definition )

Economics- is a social science which studies about


efficient allocation of scarce resources (Limited) so as to
attain the maximum fulfillment of unlimited human
needs.
The following statements are derived from the above
definition.
 Economics studies about scarce resources(Limited)
only
 It studies about allocation of resources;
 Allocation should be efficient;
 Human needs are unlimited

1.2 .The rationales of Economics


.Human needs are unlimited
.Resources are scarce or limited
1.3 scope of economic analysis
A. Micro-economics- is concerned with the economic behavior of
individual decision making units such as households, firms,
markets and industries.
 In other words, it deals with how households and firms make

decisions and how they interact in specific markets.

B. Macro-economics is a branch of economics that deals with the


effects and consequences of the aggregate behavior of all decision
making units in a certain economy.
Nature of Economics
Normative Vs. Positive Economics
#1. Positive Economics
it is that part of economics science which is concerned with
describing and analyzing the economy as it is.
It is the science of economics, and concerns the analysis of
facts.
 Positive analysis tries to answer the questions what is, what
was or what will be.
Example:
 The current inflation rate in Ethiopia is 12 percent.
 The life expectancy of birth in Ethiopia is gradually rising.
 A disagreement on positive statements can be checked by
looking in to facts.
Cont’d……

#2. Normative Economics –


A normative statement expresses a judgment about whether a

situation is desirable or undesirable.


It deals with how the economic problem should be solved.

 It attempts to produce answers to the questions " what ought to be

and what should be.“


Normative economics, in contrast to positive economics, involves

some one's value judgments about:


It is a matter of opinion
 cannot be proved or rejected with reference to facts.

Example:

 The poor should pay no taxes.

 Females ought to be given job opportunities

A disagreement on a normative statement can be solved by

voting.
1.4 Scarcity, choice, opportunity cost and
production possibilities frontier
Scarcity- refers to the limited availability of economic

resources in a way less than what people actually want.


A resource is said to be scarce if the total demand for it

exceeds its total supply at zero price level (without


payment) and its supply can be affected by price.
Scarcity limits us both as individuals and as a society.
Economic resources
Economic resources are usually classified into four
categories

 Land= The reward for the services of land is known as


rent
 Labor=The reward for labour is called wage.
 Capital=The reward for the services of capital is called
interest.
 Entrepreneurship =The reward for entrepreneurship is
called profit.
cont’d………..

Example: Lets us assume you need to perform three types of


activities in a day, namely reading this course, visiting your
relatives/friend and sleeping.

Let us also assume that you need 9 hours to read and fully
understand this course; 8 hours to visit your friends and
relatives; 8 hours to sleep comfortably.

In other words, you need a total of 25 hours for the three
activities to be performed in one day. Do you think can you
perform them as per required time?

It is clear that you cannot perform these three tasks in one day.
Cont’d…………
This sends an important message that scarcity poses choice,
implying that you need to choose one of the activities to be
performed with less time than initially required.

Thus, choice is made in economic decision making to


balance unlimited resource need with limited resource
availability.
Con‘t’d…….

Opportunity cost- is the cost of any activity measured in

terms of the best alternative forgone.


It is the sacrifice related to the second best choice available

to someone who has picked among several choices.


When we say opportunity cost, we mean that:

 It is measured in goods & services but not in money costs

 It should be in line with the principle of substitution.

In sum, Scarcity Choice Opportunity Cost


Note: Scarcity does not mean shortage.

Scarcity is an imbalance at zero price level. But shortage is

an imbalance at the prevailing or on going price.


Shortage is a specific and short term problem but scarcity is

a universal and everlasting problem.


The Production Possibilities Frontier or Curve (PPF/ PPC)

The production possibilities frontier (PPF) is a curve that shows the


various possible combinations of goods and services that the society
can produce given its resources and technology.
1.5 Basic Economic Questions
What to Produce?
 This problem is also known as the problem of

allocation of resources.
How to Produce?

 This problem is also known as the problem of choice

of technique.
For Whom to Produce?

 This problem is also known as the problem of

distribution of national product.


1.6. Economic systems

1.6 Capitalist Economy=private economy

1.6.2 Command Economy=socialist economy

1.6.3 Mixed Economy


1.7 Decision making units and the circular
flow model
There are three decision making units in a closed economy.

These are households, firms and the government.

i) Household: A household can be one person or more who


live under one roof and make joint financial decisions.
Households make two decisions

a) Selling of their resources, and

b) Buying of goods and services.


ii) Firm: A firm is a production unit that uses economic
resources to produce goods and services.

Firms also make two decisions:

a) Buying of economic resources

b) Selling of their products.


iii) Government: A government is an organization that has
legal and political power to control or influence households,
firms and markets.
Government also provides some types of goods and services
known as public goods and services for the society.
The above mentioned economic agents interact in two

markets:
 Product market is a market where goods and services are

transacted/ exchanged.
• That is, a market where households and governments buy

goods and services from business firms.


 Factor market (input market) is a market where economic

units transact/exchange factors of production (inputs).


• In this market, owners of resources (households) sell their

resources to business firms and governments.


`

THANK
YOU!

You might also like