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ECONOMICS

Prof. R. B. Deri

ECONOMICS,

DEFINED

ECONOMICS is a social
science that deals with the
proper allocation of scarce or
limited resources to satisfy
unlimited human wants and
needs.

ORIGIN OF THE WORD


The term economics comes from the
Ancient Greek oikonomia, that
means "management of a
household, administration") from
oikos, that means "house" + nomos,
that means "custom" or "law"),
hence "rules of the house(hold)".

MAIN DIVISIONS OF
ECONOMICS

The main divisions of economics are


Microeconomics and Macroeconomics.
MICROECONOMICS deals most particularly
with the detailed economic behavior of
households and firms. Microeconomics
examines the behavior of basic elements in
the economy, including individual agents
(such as households and firms or as buyers
and sellers) and markets, and their interaction

MACROECONOMICS
deals with the aggregate economic
activity of a nation, usually larger in
scope. Macroeconomics analyzes the
entire economy and issues affecting
it, including unemployment,
inflation, economic growth, and
monetary and fiscal policy.

MICROECONOMICS
Is a branch of economics that deals
with how an individual, household,
or firm properly allocates scarce or
limited resources to satisfy their
unlimited wants and needs.

MACROECONOMICS
Is the branch of economics that
deals with how the nation properly
allocates scarce or limited resources
to satisfy the unlimited human wants
and needs of its people.

ECONOMIC ANALYSIS
Economic analysis may be applied
throughout society, as in business,
finance, health care, and government, but
also to such diverse subjects as crime,
education, the family, law, politics,
religion, social institutions, war, and
science.

TYPES OF ECONOMIC
ANALYSIS
Is an economic
Positive Economics

analysis that
analyses an
economic
behavior or
economic
situation by
describing "what
is?.

Normative Economics

Is an economic
analysis that analyses
an economic behavior
or economic situation
by advocating "what
ought to be or what
should be.

TYPES OF ECONOMIC
SYSTEM
(a) Traditional;
(b) Command;
(c) Market;
(d) Mixed
(Market economy is an economy that allocates resources through the
decentralized decisions of many firm and households as they interact in
markets for goods and services.)
(Property right is the ability of an individual to own and exercise control
over scarce resources.)
(Market Failure is a situation in which a market left on its own fails to
allocate resources efficiently.)
(Market power is the ability of a single economic actor (or a small group of
actors) to have a substantial influence on market prices.)

BASIC ECONOMIC
PROBLEMS
(a) what to produce?;
(b) how to produce?;
(c) how much to produce?; and
(d) for whom goods will be produced?

FACTORS OF
PRODUCTION OR
ECONOMIC
RESOURCES
(a) Land pertains to natural
resources as source of raw

materials. Also, this includes everything that is above and


beneath the earth
(b) Labor pertains human resources as source of manpower
or human effort;
(c) Capital includes everything that are manmade goods that
are used to produce other goods i.e. machineries and
equipment; and
(d) Entrepreneurial Ability covers the innovative skills of a
person in combining the other factors of production in the
creation of goods and services.

TEN PRINCIPLES OF
ECONOMICS

HOW PEOPLE MAKE


DECISION?
1. People Face Trade-off.

2. The cost of something is what you give


up to get it.
(Opportunity cost is the cost of something that one must
give up in order to obtain something.)

3. *Rational people think at the **margin.


(*Rational people are people who systematically and
purposefully do the best they can to achieve their
objectives.)
(**Marginal change is a small incremental adjustment to a
plan of action.)

HOW PEOPLE INTERACT


5. Trade can make everyone better
off.
6. Markets are usually a good way to
organize economic activity.
7. Government can sometimes
improve market outcomes.

HOW THE ECONOMY AS A


WHOLE WORKS
8. A country's standard of living
depends on its ability to produce
goods and services.
9. Price rises when government
prints too much money.
10. Society faces a short-run tradeoff between inflation and
unemployment.

PRODUCTION-POSSIBILITY FRONTIER (PPF)

It is an expository figure for representing


scarcity, cost, and efficiency. The PPF is a
table or graph (as at the right) showing the
different quantity combinations of the two
goods producible with a given technology
and total factor inputs, which limit feasible
total output.
Each point on the curve shows potential
total output for the economy, which is the
maximum feasible output of one good,

TERMINOLOGIES
Externality is the impact of one persons action to
the well-being of a bystander.
Efficiency is the property of society getting the most
it can from its scarce resource.
Equality is the property of distributing economic
prosperity uniformly among the members of society.
Productivity is the quantity of goods and services
produced from each unit of labor input.
Inflation is an increase in the overall level of prices in
the economy.
Business cycle is the fluctuation in the economic

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