Micro Economics

ECO 100

Course plan
Unit 1- The Fundamentals of

Economics and Basic Elements

of Supply and Demand
Unit 2- Application of Supply
& Demand and Demand and
Consumer Behavior
Unit 3-Production and
Business Organization and
Analysis of Costs

Chapter 1
The Fundamentals of
Economics

2000 South-Western College

Publishing

In this chapter, you

will learn :
Basic Concepts of Economics?
What is Economics?
Scarcity, Efficiency and Choice?
Microeconomics Vs
Macroeconomics?
The logic of Economics?
Functions of economic system?
4

What is the
Economic Problem?
Providing for peoples
wants and needs in
a world of scarcity
* Return to previous slide while in slide
5
show

What is Need?
States of felt
deprivation. This
needs include
physical needs
,social needs and
individual needs.

What is Want?
The form human needs
take as shaped by
culture and individual
personality.

What are
Resources?
The basic
categories of
inputs used to
produce goods
and services
8

What are the three

categories of
Resources?
Land
Labor
Capit
al
9

What is a
Land Resource?
A shorthand
expression for any
natural resource
provided by nature
10

What is Labor?
The mental and
physical capacity of
workers to produce
goods and services
11

What is Capital?
The physical
plants,
machinery, and
equipment used
to produce other
goods
12

What is
Financial Capital?
The money
used to
purchase
capital
13

What is
Entrepreneurship?

14

The creative
ability of
individuals to
seek profits by
combining
resources to

Labor
Labor
Land
Land

Capital
Capital

Entrepreneurship
organizes
Entrepreneurship
organizes
resources
to
produce
goods
resources
to
produce
goods
and
services
and services
15

What is Economics?

16

The study of how

society chooses to
allocate its scarce
resources to the
production of goods
and services in order
to satisfy unlimited

What is meant by
Scarcity?

17

The condition in which

wants are forever
greater than the
available supply of
time, goods, and
resources

What does Scarcity

force us to do?
It forces us
to make
choices
18

What is Efficiency?
The most effective use of a
societys resources in satisfying
peoples needs and wants.

Economic Efficiency ?
Requires the highest combination of
quantity and quality of goods and
services given its technology and
scarce resources.

Scarcity and choice

20

Economics is a
science which
studies human
behavior as a
relationship
between ends and

What is
Microeconomics?
The branch of
economics that
studies decisionmaking by a single
individual, household,
firm, industry, or level

21

What is
Macroeconomics?

22

The branch of
economics that
studies decisionmaking for the
economy as a
whole

Microeconomics Vs
Macroeconomics
Microeconomic Macroeconomi
The word
s
cs
Micro derived
The word
from Greek
Macro comes
word Mikros
from a Greek
which means
word Makros
millions of parts
which means
study of
large
particular
study of the
markets and
whole economy
segments of
the economy

Continued

Deals with
Microeconomic
s issues such as
consumer
behavior,
individual labor
markets, and
the theory of
firms.
price theory
provides a
microscopic

Macroeconomi
cs
Deals with issues

such as aggregate
demand, national
output and
inflation.
income theory
provides a bird
view of the whole
economy

Is there any interaction

between Micro and
Macro Economics?

Yes

The logic of Economics

Economic life is very complicated. It

involves people buying, selling ,

bargaining, investing and persuading.
Economics aims at understanding those
complex undertakings.
Economists use the scientific approach
to understand economic life. This
involves observing economic affairs and
drawing upon statistics and the
historical record.

Continued
Economics relies upon

analyses and theories.

Theoretical approaches allow
economists to make broad
generalizations. Such as those
concerning the advantages of
international trade and
socialization and the
disadvantages of tariffs

Continued

Economists

have developed a specialized

technique known as econometrics, which
applies the tools of statistics to economic
problems

Young economists must also be alert to

common fallacies in economic reasoning .
Because economic relationships are often
complex, it is easy to become confused
about the exact reason behind events or
the impact of policies on the economy

What is Economic system?

Economic system refers

to the means by which
decisions involving
economic variables are
made in a society.

Functions of
Economic System
Traditional function
Non-traditional

function

Traditional Functions
What to produce?
How to produce ?
For whom to produce?
How to distribute the goods

and services produced?

Non-traditional functions

Economic systems must

ensure economic growth.

Economic systems must
ensure full employment of
resources.

What is
Positive
Economics?
An analysis
limited to
statements
that are
verifiable
33

What is
Normative
Economics?
An analysis based
on value
judgement
34

Summary

35

Scarcity is the fundamental

economic problem that
human wants exceed the
availability to time, goods,
and resources. Individuals
and society therefore can
never have everything they
desire.
36

Resources are factors of

production classified as
land, labor, and capital.
Entrepreneurship is a
special type of labor. An
entrepreneur combines
resources to produce
innovative products.
37

Economics is the study of

how individuals and society
choose to allocate scarce
resources. In order to satisfy
unlimited wants. Faced with
unlimited wants and scarce
resources, we must make
choices among alternatives.
38

Society
Chooses
Resources
Scarcity
Unlimited
wants
39

Macroeconomics applies an
economy wide perspective that
focuses on such issues as
inflation, unemployment, and
the growth rate of the
economy.

40

Microeconomics examines
individual decision-making
units within an economy.
Microeconomics studies such
topics as a consumers
response to changes in the
price of coffee and the
reasons for changes in the
market price of personal
computers.
41

42

Use of positive versus

normative economic analysis is
a major reason for
disagreement among
economists. Positive economics
uses testable statements. Often
a positive argument is
expressed as an if-the
statement. Normative
economics is based on value
judgments or opinions and uses
words such as good, bad, ought

END
43