WELCOME TO

FHBM1014 PRINCIPLES OF ECONOMICS

(Topic 1 Introduction to Economics)
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Irvin B. Tucker (2011)
Economics For
Todays World
7
th
edition
Publisher: Thomson
South Western
Main Text
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Mid Term Test (Week 7) 15%
Group Report (Week 9) 15%
Group Presentation (Week 11) 10%
Total Coursework 40%
Final Examination 60%
TOTAL 100%
Method of Assessment
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Lecture Notes
Tutorial Questions
Assignment Question
Unit Plan

Obtain from WBLE
http://wble.utar.edu.my

Course Materials
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Topic 1 Introduction to Economics
Topic 2 Understand The Two Simple
Economics Model
Topic 3 Market Demand and Supply (Part 1)
Topic 4 Market Demand and Supply (Part 2)
Topic 5 Price Elasticity of Demand and
Supply
Mid Term Test
Overview
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Topic 6 Concepts of National Income:
GDP and GNP
Topic 7 Macroeconomic Problems (Part 1)
Topic 8 Role of Government
Topic 9 Introduction To Money and Banking
Topic 10 International Trade and
Globalization
Final Examination
Overview
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After Completion of this chapter, students
should be able to :
1. Understand the definition of economics and
the two main branches of economics.
2. Four categories of resources.
3. Basic economic problems.
4. The study of scarcity, choice and opportunity
costs.
5. Positive and normative analysis.
Learning Objectives
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Learning Objectives
(1)
Understand the definition of
economics and the two main
branches of economics
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a) The term economics comes from a Greek
word oikonomos (household management)
from oikos (house) + nomos (custom or
law), hence "rules for running the house
(hold).

b) Def: Economics is the science that studies
how individuals and groups make decisions
with scarce (limited) resources as to best
satisfy their wants, needs, and desires.
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Introduction to Economics
c) Should economics be considered a science?
Why or why not?
Yes. Economics is the social science studies.
Economics uses models and theories to
make predictions and then tests those
predictions using empirical analysis.

d) We can break down the study of economics
into two broad categories - microeconomics
and macroeconomics.
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Introduction to Economics
a) Micro comes from Greek word mikros,
meaning small.

b) It attempts to understand the decision making
behavior of firms and households and their
interaction in markets for particular goods or
services.

c) Focuses on individual parts of an economy,
rather than the whole.

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Two Branches of Economics
d) Macro comes from Greek word, makros,
meaning large

e) Macroeconomics deals with the aggregate, or
total economy.

f) It looks at economic problems as they
influence the whole of society, including the
topics of inflation, unemployment, business
cycles, and economic growth.

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Two Branches of Economics
Learning Objectives
(2)
Four Categories of Resources
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a) Def: Basic categories of inputs used in the
production of goods and services.

b) Also known as factors of production.

c) Four types of resources:
- land,
- labour,
- capital,
- entrepreneurship.
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What Are Resources
a) Def: Any natural resource used to produce
goods and services.

b) This includes not just land, but anything
that comes from the land - water, oil,
copper, natural gas, coal, and forests.

c) The income that resource owners earn in
return for land resources is called rent.


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Factors of Production - Land
a) Def: Labor is the effort (physical and
mental) that people contribute to the
production of goods and services.

b) Exp: the work done by the waiter who
brings your food at a local restaurant as
well as the engineer who designed the bus
that transports you to campus.

c) The income earned by labor resources is
called wages.


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Factors of Production - Labour
a) Def: All non-natural (manufactured)
resources that are used in the creation and
production of other products.
b) Exp: A doctor may use a stethoscope and
an examination room to provide medical
services. Your teacher may use textbooks,
desks, and a whiteboard to produce
education services.
c) The income earned by owners of capital
resources is interest.

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Factors of Production - Capital
a) Def: The creative ability of individuals to
seek profits by taking risks and combining
resources to produce innovative products.

b) The most successful entrepreneurs are
innovators who find new ways produce
goods and services or who develop new
goods and services to bring to market.

c) The payment to entrepreneurship is profit.

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Factors of Production - Entrepreneurship
Learning Objectives
(3)
Basic Economic Problems
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What goods and services should an economy
produce? should the emphasis be on
agriculture, manufacturing or services, should it
be on sport and leisure or housing?

How should goods and services be produced?
labour intensive, land intensive, capital intensive?
Efficiency?

Who should get the goods and services
produced? even distribution? more for the rich?
for those who work hard?
The Economic Problem
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Learning Objectives
(4)
The study of scarcity, choice
and opportunity costs
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a) The problem for society is a scarcity of
resources.
b) We may want more friendship, love, knowledge,
and so on.
c) We also may have many goalsperhaps an A in
this class, a college education, and a great job.
d) Unfortunately, people are not able to fulfill all
their wants and desires, material and
nonmaterial.
e) As long as human wants exceed available
resources, scarcity will exist.


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Scarcity and Choice
American Malaysian
Human needs take the form of wants when
culture and personality are applied.
They are shaped by society.
Needs & Wants
Needs are the basic necessities that a
person must have in order to survive.
e.g. food, water, warmth, shelter and
clothing
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a) Scarcity means no society has enough
resources to produce all the goods and services
necessary to satisfy all human wants.
b) Scarcity force each of us to make choices.
c) This means each decision has a sacrifice in
terms of an alternative not chosen (opportunity
cost).


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Scarcity and Choice
SCARCITY CHOICE
OPPORTUNITY
COST
a) The cost expressed in terms of the next best
alternative sacrificed.
b) Can opportunity cost be something other than
money? Yes, the most desired good or service or
use of time that you are presently giving up is an
opportunity cost.


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Choice and Opportunity Cost
A student who must decide how to allocate
her main resource time.
Spend all the time studying economics
Spend all the time studying maths
Or divide time between both
For every hour spent on one subject, she
gives up an hour for the other.
Every hour spent studying, hour gone on
leisure or work, etc.

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Opportunity Cost - Example
Learning Objectives
(5)
Positive And Normative
Analysis
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a) Statements about how the economy works
are positive statements, whether they are
true or not.

b) Accuracy of positive statements can be
tested by looking at the factsand just the
facts

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Positive Statements
a) Used to make value judgments, identify
problems, and prescribe solutions.

b) Statements that suggest what we should
do about economic facts, are normative
statements.

c) Normative statements cannot be proved or
disproved by the facts alone.

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Normative Statements
Positive analysis : Answers the question What is? or What will be?
Normative analysis : Answers the question what should do
Positive Questions Normative Questions
If the firm decreases the wage,
how many workers will lose
their jobs?
Should the firm decrease the
wage?
How does a college education
affect a persons 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?
Positive Analysis And Normative Analysis
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Classify each of the following statements as
positive or normative.
An increase in the minimum wage will increase the rate
of teenage unemployment
The government should raise the tax on tobacco to
reduce the quantity of cigarettes sold
An increase in the rate of growth of the money supply
will lead to a rise in the price level
An increase in the interest rate will cause a decline in
investment
The government should provide healthcare to anyone
who does not have health insurance
Problem Application
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Chapter 1
Tucker, I.B (2011). Economics for todays
world. (7th ed.). Mason, OH: Thomson
South Western.
Lecture Notes
Reference
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