Lecture1 Basic Economic Concepts (1)

[object Object],[object Object],Shan Faculty of Business Management & Globalization Limkokwing Executive Leadership College [email_address] Tel: +603 - 8317 8833 (ext. 8407) BECON1201: Microeconomics MICROECONOMICS

Definition of Economics ,[object Object],[object Object]

Economics as a Social Science ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Economics as Social Science ,[object Object],[object Object],[object Object],[object Object],[object Object]

Objectives ,[object Object],[object Object],[object Object],[object Object],[object Object]

WHAT IS ECONOMICS? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

THE ECONOMIC PROBLEM: SCARCITY AND CHOICE ,[object Object],[object Object],[object Object],[object Object]

WHAT IS ECONOMICS? F actors of production The resources used to produce goods and services; also known as production inputs. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Resources ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

WHAT IS ECONOMICS? ,[object Object],[object Object],[object Object],Table 1.1 COMPARING POSITIVE AND NORMATIVE QUESTIONS Positive Questions Normative Questions • If the government increases the minimum wage, how many workers will lose their jobs? • Should the government increase the minimum wage? • If two office-supply firms merge, will the price of office supplies increase? • Should the government block the merger of two office-supply firms? • How does a college education affect a person’s productivity and earnings? • Should the government subsidize a college education? • How do consumers respond to a cut in income taxes? • Should the government cut taxes to stimulate the economy? • If a nation restricts shoe imports, who benefits and who bears the cost? • Should the government restrict imports?

THE ECONOMIC WAY OF THINKING Four elements of the economic way of thinking: 1 Use Assumptions to Simplify Economists use assumptions to make things simpler and focus attention on what really matters. 2 Isolate Variables— Ceteris Paribus Economic analysis often involves variables and how they affect one another. ,[object Object],[object Object],[object Object],[object Object]

THE ECONOMIC WAY OF THINKING 3 Think at the Margin Economists often consider how a small change in one variable affects another variable and what impact that has on people’s decision making. ,[object Object],[object Object],4 Rational People Respond to Incentives A key assumption of most economic analysis is that people act rationally, meaning that they act in their own self-interest .

Building a Foundation: Economics and Individual Decisions Market : An arrangement or institution that brings together buyers and sellers of a good or service. ,[object Object],[object Object],[object Object],[object Object]

Microeconomics and Macroeconomics Microeconomics The study of how households and businesses make choices, how they interact in markets, and how the government attempts to influence their choices. Macroeconomics The study of the economy as a whole, including topics such as inflation, unemployment, economic growth National income etc.

[object Object],SCARCITY, CHOICE, AND OPPORTUNITY COST ,[object Object]

Scarcity ,[object Object],[object Object],[object Object],[object Object],[object Object]

SCARCITY, CHOICE, AND OPPORTUNITY COST ,[object Object],[object Object],[object Object],Because resources are scarce, the opportunity cost of every investment in capital is forgone present consumption.

SCARCITY, CHOICE, AND OPPORTUNITY COST ,[object Object],[object Object],[object Object]

SCARCITY, CHOICE, AND OPPORTUNITY COST ,[object Object]

[object Object],[object Object],SCARCITY, CHOICE, AND OPPORTUNITY COST ,[object Object],[object Object],[object Object]

SCARCITY, CHOICE, AND OPPORTUNITY COST ,[object Object],[object Object],TABLE 2.1 Production Possibility Schedule for Total Corn and Wheat Production in Ohio and Kansas POINT ON PPF TOTAL CORN PRODUCTION (MILLIONS OF BUSHELS PER YEAR) TOTAL WHEAT PRODUCTION (MILLIONS OF BUSHELS PER YEAR) A 700 100 B 650 200 C 510 380 D 400 500 E 300 550

SCARCITY, CHOICE, AND OPPORTUNITY COST ,[object Object],[object Object]

SCARCITY, CHOICE, AND OPPORTUNITY COST ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

ECONOMIC SYSTEMS ,[object Object],[object Object],Some markets are simple and others are complex, but they all involve buyers and sellers engaging in exchange. The behavior of buyers and sellers in a laissez-faire economy determines what gets produced, how it is produced, and who gets it.

ECONOMIC SYSTEMS ,[object Object],[object Object]

Goods and services Consumer expenditure Wages, rent dividends, etc. Services of factors of production (labour, etc) The circular flow of goods and incomes GOODS MARKETS FACTOR MARKETS

Lecture1 Basic Economic Concepts (1)

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