basic understanding - concepts and

principles in economics.
basic understanding the issues, problems,
operations, operation, application and
limitations of economic models.
basic application of appropriate principles of
economics to current economic development.

MDM RAHANA AR FBM

CHAPTERS
INTRODUCTION TO MICROECONOMICS
PRICE THEORY
INTRODUCTION TO MACROECONOMICS
MACROECONOMIC THEORIES
MONEY AND BANKING
MONETARY POLICY AND FISCAL POLICY
INFLATION AND UNEMPLOYMENT
INTERNATIONAL TRADE
CURRENT ISSUES AND DEVELOPMENTS
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CHAPTER 1
INTRODUCTION TO
MICROECONOMICS

ECO099 SEM NOV 2011

MDM RAHANA AR FBM

SYNOPSIS
This subject deals with issues and
problems pertaining to both
microeconomics and macroeconomics
and their application in real life. The
course will provide a quick overview
of the issues to enable the students
to appreciate and get acquainted
DISCUSSION
CASE STUDY
with economic
issues.
CUTTING PAPER (NEWPAPER)

ARTICLE
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Economic problem .

Provide peoples
(unlimited) wants and
needs in a world of
scarcity (limited
resources)
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 All economic questions arise because

we want more than we can get.
Our inability to satisfy all our wants is
called scarcity.
Because we face scarcity, we must
make choices. The choices we make
depend on the incentives we face.
An incentive is a reward that
encourages an action or a penalty
that discourages an action.
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Scarcity
The condition in which
wants are forever
greater than resources

It forces us to make
choices
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Resources
- inputs used to
produce goods and
services

1.Land 3.
Capital
2.Labor
4.
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Two Big Economic

Questions
What, How, and For Whom?
Goods and services are the objects that people
value and produce to satisfy human wants.

What?
Agriculture accounts for less than 1 percent of total
U.S. production, manufactured goods for 20 percent,
and services for 80 percent.
In China, agriculture accounts for 10 percent of total
production, manufactured goods for 50 percent, and
services for 40 percent.
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Two Big Economic

Questions
How?
Goods and services are produced by using productive
resources that economists call factors of production.
Factors of production are grouped into four categories:
Land
Labor
Capital
Entrepreneurship

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Two Big Economic

Questions
For Whom?
Who gets the goods and services depends on the
incomes that people earn.
Land earns rent.
Labor earns wages.
Capital earns interest.
Entrepreneurship earns profit.

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ECONOMICS

The study of how

society chooses to
allocate its scarce
resources in order to
satisfy unlimited
wants and needs
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Economics is the social science that studies

the choices that individuals, businesses,
governments, and entire societies make as
they cope with scarcity and the incentives
that influence and reconcile those choices.
Economics divides in to main parts:
Microeconomics
Macroeconomics
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MACROECONOMICS..
The branch of economics that
studies decision-making for the
economy as a whole; or
Macroeconomics is the study
of the performance of the
national and global economies.

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MICROECONOMICS
The branch of economics that studies
decision-making by a single individual,
household, firm, industry, or
government;
The study of choices that individuals and
businesses make, the way those choices
interact in markets, and the influence of
governments.
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Identify the
the problem
problem
Identify
Develop aa model
model based
based
Develop
on simplified
simplified assumptions
assumptions
on
Test the
the model
model and
and
Test
formulate aa conclusion
conclusion
formulate
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MAIN ASSUMPTION ..

ceteris paribus
A Latin phrase that
means that while
certain variables can
change, all other
things remain
unchanged
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Disagreement among
economists

The answer lies in

understanding the
difference between
positive and normative
economics
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POSITIVE
ECONOMICS

An analysis limited to
statements that are
verifiable

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NORMATIVE
ECONOMICS.

An analysis based
on value judgement

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THE ECONOMIC WAY OF

THINKING
Choices and Tradeoffs
The economic way of thinking places scarcity and its
implication, choice, at center stage.
You can think about every choice as a tradeofan
exchangegiving up one thing to get something else.
The classic tradeoff is guns versus butter.
Guns and butter stand for any two objects of
value.

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What, How, and For Whom

Tradeofs
The questions what, how, and for
whom become sharper when we
think in terms of tradeoffs.
What Tradeofs arise when people
choose how to spend their incomes,
when governments choose how to
spend their tax revenues, and when
businesses choose what to produce.
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Choices Bring Change

What, how, and for whom goods and
services get produced changes over time
and the quality of our economic lives
improve.
But the quality of our economic lives and
the rate at which they improve depends
on choices that involve tradeoffs.
We face three tradeoffs between enjoying
current consumption and leisure time and
increasing future production,
consumption, and leisure time.
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Opportunity Cost
Thinking about a choice as a
tradeoff emphasizes cost as an
opportunity forgone.
The highest-valued alternative that
we give up to get something is the
opportunity cost of the activity
chosen.
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Responding to Incentives
Our choices respond to incentives.
For any activity, if marginal benefit
exceeds marginal cost, people have an
incentive to do more of that activity.
If marginal cost exceeds marginal
benefit, people have an incentive to do
less of that activity.
Incentives are also the key to reconciling
self-interest and the social interest.
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