1. What is economics about?

Economics is as old as the human race, but as academic discipline it is relatively new. The first major
book on economics was The wealth of nations written by Adam Smith. It was published in 1776.
Economics is a theory of how society works. Its difficult to give the exact definition of economics. The
great classical economist Alfred Marshall defined economics as the study of man in the everyday business
of life. But this definition is not very clear. The guiding idea in economics is scarcity. Virtually everything
is scarce; not just diamonds and oil, but also bread and water. This is the case because there are not enough
resources to satisfy all peoples needs and wants. Whenever one need or want is satisfied there is another
one to be satisfied, so we can say that needs are endless.
Because of the existing problems, every society has to choose how to make the best use of scarce
resources. The great American economist Paul Samuelson said that every society has to answer three
questions:
1. What? what goods are to be produced with scare resources?
2. How? how should we combine resources of labour, land, etc. in order to produce the goods we
need?
3. For whom? how should the produced goods be distributed?
People, scarcity and choice are the three vital ingredients in the definition of economics.

SCARCITY the limited nature of societys resources

2. Economic VS free goods

Economic goods are all scarce goods. Their scarcity leads to costs. Economists define cost as the value
of what individuals have to forgo to acquire a scarce good. The direct result of the scarcity of resources is
the opportunity cost. Opportunity costs always include all accounting costs, and they are the true, total
measure of the costs of anything. Economic goods are those which are scarce in relation to the demand for
them. There are two categories of scarce resources: human and nonhuman resources.
Human resources abound, they apply talent and energy to produce goods and services. They encompass
all types of labour: management , entrepreneurship, knowledge, know-how.
Nonhuman resources include land, natural resources, minerals; capital comprises machines, buildings
and implements; technology is a resource composed of all know-how, inventions and innovations;
information is a scarce and costly resource that has never been free; time because its quantity is fixed, the
things we could do with it are numerous so we must constantly make choices.
Free goods are goods that are available in sufficient amounts to satisfy all possible demands. But there
are no many things truly free. The only thing which is truly free is the air.

OPPORTUNITY COST whatever must be given up to obtain some item

 3. Micro and macroeconomics

Thanks to John Maynard Keynes it has been customary to divide economic theory into
microeconomics and macroeconomics.
Microeconomics is concerned with small parts of the economy and the inter-relationships between
these parts. Microeconomists are concerned with individual markets and with the determination of relative
prices within those markets, supply and demand for all goods, services and factors of production.
Macroeconomics is the study of economy as a whole. Macroeconomics goals: full employment, price
stability and economic growth. The overall goal of macroeconomics policy is the achievement of economic
stabilization, which means: full employment, under inflationless conditions to attain maximum economic
growth.
Full employment is a primary goal, because the more fully resources are employed, the greater the
levels of output of goods and services are, and the higher the prosperity is.
Price stability is second major goal which means the absence of inflation. Inflation is macroeconomic
situation characterized by sustained and continuous increases in the overall level of prices. When this
change in prices is expressed as a percentage, the number calculated is called inflation rate. Even when it
stands at relatively modest levels, it can pose problems for the economy. When prices of goods and services
rise, but peoples nominal income remain the same or dont rise as fast as prices, the real income of these
consumers falls. Real income is the real purchasing power of ones nominal income or the quantity of goods
and services that can be bought with a nominal, money income.
Economic growth is the third major goal, measured in terms of gross national income (GNI) the
final output of goods and services produced in the economy over a year.

4. Positive and normative economics

Difference between positive and normative economics is that normative economics includes
statements about what ought or ought not to occur in economic affairs and positive economics include
statements about what does or does not occur in economic affairs. For example, statement in positive
economics is: inflation will be reduced if taxes are increased and in normative economics: inflation
ought to be reduced.
The aim of positive economics is to explain how society makes decision about consumption,
production and exchange of goods. This can help us to satisfy our curiosity about why the economy works
as it does and it can help us to predict how the economy will respond to changes in circumstances.
As we can see, there is no scope for personal value judgments; we are only concerned with
prepositions of the form: if this is changed then that will happen. Look for example the following
statement in positive economics: the elderly have very high medical expenses compared with the rest of
population. It shows us how the world works and we can do research and prove whether or not it is correct.
On the other side, normative economics is based on subjective value judgments and statements in
normative economics such as: the Government should subsidize (help by giving money) health bills of the
aged could never be proved to be correct or false. Some people might agree, but some other might disagree
with this statement about what the Government should do.
 5. Models: the need for abstraction

Models are the means through which economists organize their thoughts about human behavior and its
results. They require assumptions and abstractions from the real world. As peoples minds are limited and
economist could never handle all the details, we must abstract from extraneous factors to isolate and
understand some other factors. Economists assume that extraneous factors are constant that other things
are equal or that they have a predictable effect on model.
Good models use relevant factors and poor do not. In constructing models, economists must avoid
fallacy of composition and the post hock fallacy.
The fallacy of composition involves generalizing based only on particular experience. For example if
the first fox we saw in life was white, we can conclude that all foxes are white and we would commit fallacy
of composition.
The post hock fallacy is the faulty reasoning of cause and effect relations between events. For
example: high interest rates cause inflation.

MODEL a simplified abstraction of the real world that approximates reality and makes problems
easier to analyze
FALLACY OF COMPOSITION incorrectly generalizing that what is true for a part is also true for
the whole
POST HOCK FALLACY the incorrect linking of unrelated events as a cause-and-effect
relationship simply because one event happens after the other

6. Division of labour: advantages and disadvantages

The expression division of labour refers to the dividing up economic tasks into specializations. Thus
few workers these days produce the whole commodity but only undertake particular parts of the production
process.
The enormous advantages of division labour were first recognized by Adam Smith. He described pin
making in The wealth of nations:
one man draws out a wire, another straights it, a third cuts it, a fourth points it and so on and as a
result, we have increased production.
Advantages of division of labour:
1. increase in skill and dexterity tasks can be done more expertly because their constant repetition
2. time saving time can be saved in the training of people; a person can quickly be trained to fulfill
one operation in some production process.
3. individual aptitudes division of labour allows people to do what they are best at
4. use of machinery it is vary useful and saves effort
Disadvantages of division labour:
1. interdependency one person is depended upon the other people
2. dislocation because of interdependency the possibilities for dislocation are very great. For
example, a strike by key workers such as the miners can bring the whole country to a halt
3. unemployment if the skill, acquired in training, is no longer required it is very difficult for the
person to find alternative work
4. alienation if a persons job is one simple operation, he or she should feel bored.
 7. Pure competition VS monopoly

In a purely competitive market, each firms production is such a small proportion of industry output
that a single firm has no influence on the market price. There are 4 conditions that characterize a purely
competitive market:
1. homogeneous product - firms in a purely competitive market sell a homogeneous product. They
sell identical or nearly identical products that are perfectly substitutable for one another. This
means that advertising doesnt exist in a purely competitive market because product of one firm
cannot be distinguished from products produced by a large number of competing firms
2. a large number of buyers and sellers an existence of a large number of independent buyers and
sellers rules out the possibility of agreement among them to affect price and output. A single buyer
or seller has no influence on the market price
3. no barriers there are no barriers to entry or exit in a purely competitive market
4. perfect information buyers and sellers have equal, free access information about the price
differences and the location of a product
Pure monopoly is an industry composed of a single seller of a product with no close substitutes and
with high barriers to entry such as: legal barriers, economies of scale and control of an essential resource.
Examples of pure monopoly in the sense of a single seller in an industry are rare. The monopoly was
usually granted to a group of merchants, who were group of sellers acting as a single seller.
All products show some degree of substitutability. So, where there are close substitutes, the
monopolist cannot raise prices without losing sales, but where there are no close substitutes, the monopolist
has more power, he can alone affect market price by changing the amount of output.

A MONOPOLY has no close competitors and can influence the market price of its product.
ECONOMIES OF SCALE - the property whereby long-run average cost falls as the quantity of output
increases

8. Money: its origins and attributes

The word money derives from the Latin moneta. Before coinage, various objects such as cattle,
pigs teeth and cowrie shells had been used as money. Such forms of money are termed commodity money.
For most of the history money has taken the form of coins made of precious metal, so it had intrinsic value.
Both paper money and modern banking practice originated from the activities of goldsmiths. They used
to accept deposits of gold coins and precious objects for safe keeping, in return for which a promissory note
would be issued. These notes began to act as bank notes do today in settlements of debts.
In todays society we are seeing more sophisticated ways of paying for goods and services, but still 90%
of all transactions are in cash so that it is unlikely that cash will be ever replaced, especially for minor
transactions.
The main characteristics an asset should have to function as money are:
1. acceptability money is readily acceptable
2. durability it shouldnt wear out quickly. This problem may affect paper money or coins, but bank
deposits suffer no physical depreciation
3. homogeneity money should be uniform, which means that all coins should contain the same
amount of gold (one or two grams)
4. divisibility modern notes and coins can be easily divided into smaller units, which wasnt case
with commodity money
 5. portability commodity money may be difficult to transport, but modern bank deposits may be
transmitted electronically
6. stability of value it is highly desirable that money should retain its value. One of the most serious
defects of modern money is that it may be affected by inflation
7. difficult to counterfeit the possibility for fraud and counterfeit must be kept to a minimum

9. Money: its functions

Money can be defined as anything, which is readily acceptable in settlement of a debt. Money has four
functions:
1. medium of exchange money makes easy the exchange of goods and services in the economy,
because money can be exchanged for all the different things we need. If there were not money we
would have to exchange one thing for another, which is called barter. However, there must be double
coincidence of wants. For example if we have chickens, but wish to acquire shoes, then we must find
someone who has shoes, which he wants to exchange for chickens. The difficulties of barter will limit
the possibilities of exchange and thus inhibit the growth of an economy.
2. unit of account money is a means by which we can measure the different things, which make up
economy. We can compare those things and aggregate their value. Without money, everyone who
trades must calculate relative prices of goods in terms of other goods in order to make rational trades.
3. store of value money presents the most useful way of putting aside some of our current income and
saving it for future
4. standard of deferred payment many contracts involve future payment, e.g. hire purchase,
mortgages and long term construction work. Any contract with a time element in it would be very
difficult if there were not a commonly agreed means of payment.
Inflation negatively affects the functions of money but it doesnt affect them all equally. Money may
become unacceptable as a medium of exchange, it becomes more difficult to compare values over time,
savings will be devalued, businesses may be unwilling to become creditors over long periods of time when
they are afraid of a decline in the value of money.
Inflation may also have an international effect upon the currency. High rates of inflation will make the
currency less acceptable internationally and so it can cause bad effects upon the exchange rate.

11.The centrality of marketing

There is a difference between marketing and selling. The selling concept assumes that resisting
consumers have to be persuaded to buy non-essential goods and services. The marketing concept
assumes that producers task is to find wants and fill them, to anticipate and create new ones. You make
what will be bought.
Marketers are always looking for market opportunities profitable possibilities of filling unsatisfied
needs and creating the new ones in areas in which company has distinctive competencies. These
opportunities are generally isolated by market segmentation. When company identifies target market, it has
to decide what goods or services to offer.
Before launching a product most companies undertake market research. They collect and analyze
information about size of a potential market, about consumers reactions to particular product or service.
When the basic offer, e.g. a product concept is established we must think about marketing mix all the
various elements of a marketing programme. Classification of these elements is the four Ps: product,
place, promotion and price.
Products include quality, style, brand name, size, packing, services and guarantee.
Place includes distribution channels, points of sale, transport
Promotion groups together advertising, publicity, sales promotion and personal selling
Price includes the basic price list, discounts, the length of payment period, possible credit terms
 Apart from consumer markets where people buy products for direct consumption- there exist an
enormous producer or industrial or business market where individuals and organizations that acquire goods
and services used in the production of other goods.

10.The nature of accounting

Accounting is the system a business uses to measure its financial performance by recording and
classifying sales, purchases and other transactions. It makes possible to evaluate a companys past
performance, present condition and future prospects.
In all their work with financial data, accountants are guided by two fundamental concepts: the
accounting equation and double-entry bookkeeping.
For thousands of years, businesses and governments have kept records of their assets and liabilities.
Assets are valuable things they own, and liabilities are things they owe to others. Owners equity is what
remains after liabilities are deducted from assets. Accounting equation:
ASSETS = LIABILITIES + OWNERS EQUITY
To keep accounting equation in balance, companies use a double entry system that records every
transaction affecting assets, liabilities or owners equity. Double-entry bookkeeping requires a two-part,
give and get entry for every transaction.
After few months, to simplify the picture, accountants prepare financial statements that summarize the
transactions. Two of the most important are the balance sheet and the income statement (US) or profit and
loss account (GB).
A balance sheet shows a financial position of a company at one moment in time. It includes all the
elements in the accounting equations , showing the balance between assets and owners equity. Every
company prepares a balance sheet at least once a month or at the end of fiscal year.
The asset section of the balance sheet is divided into three types of assets:
1. current assets - include cash, stocks, bonds and amounts due from customers, services paid but not yet
used and other items that will become cash within the following year.
2. fixed assets comprise property, land equipment
3. intangible assets include costs of organizing the business, patents, copyrights and trademarks. And
goodwill which consist of a companys reputation, especially in its relation with customers.
Obligations that will have to be met within a year of the date of the balance sheet are current liabilities,
and obligations that fall due a year or more after the date of the balance sheet are long-term liabilities.
The income statement (profit and loss account) reflects the results of operations over a period of time.
It summarizes all revenues and all expenses and then subtracts expenses from revenues to show profit or
loss of a company, a figure known as net income.
Revenues (or sales) amounts that have been or are received from customers for goods and services
delivered to them
Expenses the costs that have arisen in generating revenues.

12.Historical milestones in advertising

Advertising isnt a new activity of modern industrialism, but an ancient practice. Archaeologists found
some signs which were announcing gladiatorial contents. In Greece, during the golden age, town criers
were paid to circulate through the streets of Athens announcing the sale of slaves, cattle and other goods.
Artisans placed the mark on their individual goods so buyers began to look for distinctive mark just as
trademarks are used today.
The turning point in the history of advertising was 1450, the year Gutenberg invented printing press and
first-known printed advertisement in English language appeared in 1478.
Then, in 1622, the new medium appeared newspapers. The first English newspapers was The Weekly
News.
 However, the advertising had its greatest growth in the USA. Benjamin Franklin is often called the
father of American advertising because his Gazette, first published in 1729, attained the largest
circulation and advertising volume of any paper in the USA. Several factors contributed to Americas
becoming the cradle of advertising:
1. surpluses mechanization of production
2. transportation was feasible (fine network of highways, roads and waterways)
3. compulsory public education led to the discipline of illiteracy

13.Types of business organizations

Business organizations are those who exist with the intention of maximizing their profits. The most
important distinction is the type of competition under which a firm operates. There are four legal forms of
business:
a sole trader its a business organization owned by one person, who provides the capital, takes the
profit and stands the losses themselves. The sole trader is in potentially vulnerable financial position, so
many sole traders are made bankrupt each year. But it still remains the most common business unit in UK
and they are backbone of the business structure on which the country depends. They offer attractive
advantages: the initial capital investment is usually vary small, legal formalities are minimal, they can adapt
quickly to the level of demand and can make personal economies until business improves.
a partnership its formed between two or more persons who get together for business purposes;
partnerships are usually formed by professional people such as doctors, architects, stockbrokers two or
more persons in partnership can combine their resources. The maximal number of members possible is fixed
by law at 20. they can have either limited or unlimited liability.
limited liability means that an investors liability to debt is limited to the extent of their shareholding.
This encourages investments because it limits the risk to the amount they have actually invested.
Public limited company has the letters PLC after its name. Shares in public companies can be bought
and sold by members of the public on the stock exchange.
Private limited company has the abbreviation LTD after its name. A private limited company has
usually not more then fifty members who provide the capital which is divided into shares. The shares cannot
be offered for sale to the general public. If the company wants to grow larger, it would then have to raise
capital by selling shares on the open market. It would then become a public limited company.
Firms can also become larger:
- by mergers two firms agree to join together
- by takeovers one firm buys out another

14. Entrepreneurship

Entrepreneurship is a special form of labour. An entrepreneur is a person who perceives profitable

opportunities and who combine resources to produce salable goods or services. They are people with ideas
about how to make money. They see profit opportunities where others dont: in new products, new locations
etc. they take a risk because there is no guarantee that perceived profit opportunities will in fact materialize.
Entrepreneurship consists of offering the most attractive opportunities to the other market participants
perceiving unfulfilled demands, offering higher prices to sellers or lower prices to buyers, improving
existing goods or making them more cheaply, finding more effective means of communicating to consumers
the availability and attributes of goods.
Famous entrepreneurs:
- Bill Gates he is founder, major stockholder and chairman of Microsoft, a firm that makes
computer software or programs.
- Henry Ford founder of Ford motor company and manufacturing assembly line innovator
- Donald Trump billionaire real estate tycoon and host of The Apprentice
- Coco Chanel one of the major innovators of 20th century fashion
 - Ingvar Kamprad IKEA founder and one of the worlds richest men

15.The beauty of numbers

Statistics is factual data represented in numerical form. They are often expressed in percentages.
The most understandable way of representing data is by average. Average is a number typical of a group
of numbers or quantities. The most widely used averages are the mean, the median and the mode.
The mean its the sum of all items in the group divided by the number of items in the group. It is
used when we want to compare one item or individual with a group. The advantages of the mean are:
ease for comprehension and speed of computation. One disadvantage of the mean is that it gives
distorted picture when there is extreme value
The median the midpoint, or the point at which half the numbers are above and half below. With
an odd number of items, the median can be found by inspection, but if there is an even number of
items, the midpoint would be the mean of the two central figures. The main disadvantage of the
median is that people dont understand what it means. More often, it is hard to arrange a large
number of items in order by size.
The mode it is the number that occurs most often in any series of data or observations. The mode
shows the most frequent size or amount. The mode is not influenced by extreme values and it
shouldnt be used when the total number of observations is small. There is no mode if a number does
not appear more then once.