C:\fakepath\chapter one basics of micro economics

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ppt on Introduction to Economics concepts

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  • 1. Economics- The world Around you

2. EXAMPLES OF SOME ECONOMIC DECISIONS

  • Whether to buy a car this week.
  • Whether to have pizza for dinner tonight, or something else.
  • How hard to study for this course.
  • Whether to go to college, and if so, which one.
  • Whether to buy a Ticket for the movie.

slide 3. Definition of Economics

  • Economicsis the study of how scarce resources are allocated among unlimited wants.
  • To understand this definition, we must examine the concepts ofscarcity , andeconomic choice

4. Human Nature and Reality

  • People haveunlimited wants .
  • People havelimitedresources to acquire the things they want.
  • As a result, they must makechoices .
  • Choices involve pursuing some things whileforgoingothers.

5. Scarcity, Goods and Bads

  • An item that costs something is calledscarce .
    • Anything with a price on it is called aneconomic good these includegoodsandservices .
    • Afree goodis a good for which there is no scarcity.
  • Aneconomic badis anything you want to get rid of (pollution, disease, garbage)

6. Clarifying Concepts

  • Scarcitymeans that not enough is available for free.
  • Ashortageoccurs when not enough is available at the current price.A shortage is a problem of price .
  • Povertyoccurs when the goods are scarce, and those who need them do not have the income to obtain them.Poverty is a problem of income .

7. Goods to Produce Goods

  • Resourcesare the elements needed toproduce goods. Resources are also called
    • factors of production
    • inputs
  • They are:
    • Land (includes natural resources)
    • Labor (physical and intellectual services of people)
    • Capital (plant, machinery, equipment used in production)

8. Resources in Production Producers of Goods Resource Suppliers land labor capital rent wages interest 9. Scarcity and Choice

  • Scarcitynecessitates makingchoices .
  • Economics is the study of how people choose to use their resources in attempts to satisfy their unlimited wants.

10. Positive vs. Normative Economics

  • Positive Economics
    • Focuses onwhat is.
    • Analyzes actual, measurable outcomes.
    • Doesnotimpose value judgments, person feelings or convictions.
    • Positive economics is economics as a science.
  • Normative Economics
    • Focuses on what someone thinksought to beorshould be .
    • Makes ethical judgmentsvalue judgments.

11. Common Analytical Mistakes (Logical Fallacies)

  • Fallacy of Composition
    • The mistaken assumption that what is true of a part is also true of the whole.
  • Association is not Causation
    • The mistaken assumption that because two events occur together, one must cause the other. Also given as correlation is not causation.
  • Violation ofCeteris Paribus
    • Ceteris Paribus: Latin for all else equal.
    • This occurs when one attempts to analyze the effect of one thing while holding everything else constant, when in fact other thingshavechanged.

12. Micro vs. Macro

  • Microeconomics
    • Studies the economy at the level of individual consumers, workers, firms, goods, and markets
  • Macroeconomics
    • Studies the economy at the aggregate level, at the level of the economy as a whole.
    • Examines total consumer behavior, total employment, total production, total sales, etc.

13. Micro Economics

  • Definition- Studying a part of economy, a unit or particular, specific aspects
  • Characteristics:
    • Study of individual
    • Determination of individual prices
    • Small variables
    • Immediate disposal of the problem
    • Immediate decisions are possible

14. Need and Significance

  • Essential for understanding total economic system
  • Helpful in- solving of economic problems
  • Deciding economic policy
  • Economic decision of individual unit
  • Enquiring about economic welfare
  • Scope:
  • Theory of Product Pricing
  • Theory of Factor Pricing
  • Theory of economic welfare

15.

  • Limitation:
  • Study of industrial units only
  • Unrealistic assumption
  • Study of a part of economy only
  • Few specific problems only
  • Limited study of economic problems
  • Macro Economics:
  • Studying aggregates
  • Study of whole economy system
  • Study of total

16. 17. 18.