economics lecture 101 1st chapter for UOG

1. ECO-101: Introduction to
Economics
Instructor: Abeera Irfan

2. Introduction
• Human Wants:
human wants means the to get and use goods and services, which provide
satisfaction.
For example:
Hungry person wants food
Barefooted person wants shoes
A student wants books

3. Human wants are of two types
• Economic wants
These are the wants which can be satisfied only by spending money e.g. want to
get a cycle or a hair cut are economic want.
• Non economic want
The desire of the people which possible to satisfy without use of money are called
non-economic want e.g. desire for friendship, care etc

4. Goods and services
• Goods:
All material things which are used by human beings to satisfy their wants are called
goods.
• Services:
Those actions of individuals, which can satisfy others wants are called services. e.g.
lecture by professor, examination of patient by doctor.

5. Type of goods
• Consumer goods
These are the goods which can satisfy human wants directly. E.g. car, cycle, pen
• Capital goods
These are the goods which are used for production of other goods or of earning
income.
• economic goods
The goods are scarce in relation to demand are called economic goods. Man made
goods.

6. Public goods vs private goods
• Public goods
A public good is that whose benefits are indivisible i.e. when this is provided to
some people other cannot be excluded from using it. E.g. parks, national defense
etc.
• Private goods
Private goods are excludable goods i.e. people who do not pay for them excluded
from its use. A car is a private good.

7. Definition of Economics
“economics is the social science concerned with how individuals, institutions, and
society make optimal (best) choices under conditions of scarcity.”
 Scarcity and Choice:
Scarce economic resources mean limited goods and services. Scarcity restricts
options and demands choices.
Because we “can’t have it all,” we must decide what we will have and what we must
forgo. At the core of economics is the idea that “there is no free lunch.” You may be
treated to lunch, making it “free” from your perspective, but someone bears a cost.

8. Opportunity cost
“To obtain more of one thing, society forgoes the opportunity of getting the next
best thing. That sacrifice is the opportunity cost of the choice.”
• Economic problem:
Economic problem is the problem of scarcity of resources in comparison with
human wants (means human wants are unlimited and resources are limited).
scarcity compels us to make choices.
What goods are to be produced.
How the resources are used to produce the good and services.
For whom who will get how much of produced goods and services.

9. Nature and Scope of Economics
• Economics is the scientific study of the ownership, use and exchange of scarce
resources.
• It is regarded as a social science because it uses scientific methods to build
theories that can help explain the behavior of individuals, groups and
organization.
 Scope of economics:
Economist use different economic theories to solve various economic problem in
society.
Sub-heads of economics: microeconomics and macroeconomics

10. Microeconomics vs macroeconomics
• Microeconomics is the branch of economics that studies the small economic unit.
It explains the decisions and interactions of individuals economic unit like
consumers and firms.
• It is study of trees not forest.
• Macroeconomics is the branch of economics that studies the economic system as
a whole. National saving, national income, level of employment and general price
level in the country.
• It is study of forest not tress.

11. Positive and Normative Economics
• Positive Economics deals with facts and their interrelationships as they exist.
Positive economics deals with observed economy.
The statements are objective and verifiable facts about some economic aspects.
• Normative economics deals with the value judgments and personal opinions
about what the economy should be. Normative deals with desired economy and
it is a subjective opinion and value judgment.

12. Factors of Production
• What are factors of production?
Factors of production are the resources people use to produce goods and services;
they are the building blocks of the economy.
These resources are also called inputs.
Economists divide the factors of production into four categories:
1. Land
2. Labor
3. Capital
4. Enterprise

13. • Land: all the naturally occurring resources (gifts of nature).
Land is also called natural resources.
It includes resources found:
In the air (oxygen), in the land (gold)
On the land (forest) etc.
The payment of land is rent.
• Labor: All human effort- whether mental or physical that contributes to
production.
Labor is also called human resources. For examples: nurses, soldiers etc.
The payment of labor is wages.

14. • Capital: capital refers to all man made resources used in the production process.
• Examples: machinery and equipment.
• the payment for the use of capital is called interest.
• Enterprise: this is ability to combine or organize the other factors of production.
• It is also called entrepreneurship.
• The payment for enterprise is profit.

15. Production Possibility frontier or curve
• The collection of all maximum possible combination of goods and services within
the available resources is called Production possibility frontier.
• Assumptions:
• Two goods
• Quantities of resources do not change.
• Production technology do not change.

16. Graphical Representation
• Production possibility frontier is a downward sloping Concave curve. The curve of
PPF would be always negative because of the opposite relationship between the
two products. On the X-Axis of the graph, there’s one product and on Y-Axis
there’s another product. All the points on the curve show optimum utilization of
all resources, with the best possible combination of two products.
Soap (Units) Pencil (Units)
0 30
2 29
5 26
9 20
11 12
12 0

17. Graph

18. Interpretation of graph
• We assuming economy only producing two goods i.e. soap and pencils.
• We assume that resources are scarce or limited. So there is fixed amount of
resources which is spend on this production.
• We assume that we invest all money to producing pencils. In that case
production of soap is zero and 30 units of pencils are produced.
• Now, we assume that we have little demand of soap in the economy. It can be 2
units of soap and 29 units of pencils are produced and so on.
• If we increasing the production of one good then decreases the production of
other good because of limited resources.
• Production possibility curve basically shows the different possibilities of
production.