ECONOMICS. ECONOMICS.. ECONOMICS IS The study of the production, distribution and consumption of...

ECONOMICS.ECONOMICS.

ECONOMICS ISECONOMICS IS

The study

of the

production, distribution

and

consumption of wealth

in the

society.

Another definition on the subject:"Economics

is a social

science

that studies human behaviour

as a relationship between ends and scarce means which have alternative uses"

The purpose of any Economic The purpose of any Economic Activity Activity

is is the production of goods and services to

satisfy consumers’ needs and wants

for

survival

and also

for a

better living standard.

The Basic Economic ProblemThe Basic Economic Problem

The basic economic problem is about scarcity and choice.

Due to the existence of a limited amount of resources to produce an unlimited amount of goods and services all

societies face the problem of having to decide

WHAT TO PRODUCE?

HOW TO PRODUCE?

FOR WHOM TO PRODUCE?

Thus,Thus,

scarcity arises because people have unlimited wants

and

resources are limited.

Because

of scarcity,

various economic decisions must be made to allocate resources efficiently.

Scarcity leads to the concept of Scarcity leads to the concept of Market ValueMarket Value. .

When the supply of a good or service is low, the market value will be high.

WHEREAS

Goods and services that are in large supply will have a lower market value

because supply meets the Consumers’ demand.

Thus,

The concept of Market Value

is based

on individual preferences

and

choices. 

People

express

their

preferences

through

their

tradeoff.

Economic SystemsEconomic Systems

An economic system is a network of organizations used by a society to

ANSWER

the basic

QUESTIONS

of

what, how and for whom

to produce. 

There are four types of economic systems.

1- The Traditional ECONOMY1- The Traditional ECONOMY

In this system decisions

about

what, how and for whom to produce

are based on

custom and tradition.

Land is owned in common.

Private property is not well defined.

2- Free market economy2- Free market economy::

In this system   An increase in demand raises price and

encourages firms to switch additional resources into the production of that good or service. 

The amount of products consumed depends on consumers’ income.

The government has a limited role. It just protects the property rights of people and

businesses and the value of currency.

3- Planned or command 3- Planned or command economyeconomy

In this system

resources are owned by the government.

It allocates them, and sets production targets and growth rates.

Income and wealth distribution are decided by the state.

4- Mixed economy:4- Mixed economy:

In this system Some resources are owned by the public

sector (government) and others by the private sector.

The public sector supplies merit goods and intervenes in markets just to correct

market failure.

OPORTUNITY COSTOPORTUNITY COST

It measures the cost of any choice in terms of the next best alternative forgone

Examples of OCExamples of OC

EXAMPLE1

A person is paid £6 per hour to work at a local supermarket.

In case, he chooses to take a day off from work he loses £48 from having sacrificed

eight hours of paid work .

The opportunity cost of going to college is the money he would have earned if he worked instead. 

On the one hand, he loses four years of salary while getting his degree.

But on the other hand, he will earn more during his future career, thanks to his degree.

 ThusWorking with a degree conpensates

the four years’ lost wages.

EXAMPLE 2

If a gardener decides to grow carrots, his opportunity cost is the alternative crop that

might have been grown instead.

(potatoes, tomatoes….)

SECTORS OF PRODUCTION SECTORS OF PRODUCTION IN THE ECONOMYIN THE ECONOMY

1- Primary sector

It involves the extraction of natural resources

e.g.

agriculture, forestry, fishing,and mining.

2- Secondary sector

This sector involves the production of goods.

It is the transforming of materials produced by the primary sector.

e.g. manufacturing and the construction industry

3- Tertiary sector

It is the sector of the economy which provides services

such as

banking, finance, insurance,

retail, education, travel and tourism.

4- Quaternary sector

It is involved with

information processing

e.g. education, research

and

development