The Nature and Method of Economics 1 C H A P T E R

Write your list of needs My list of needs and wants: 1. ….. 2. ….. 3. ….. Unlimited resources How can we satisfy our needs and wants? Need resources

What are resources? 1.Land 2.Capital 3.Labor 4.Entrepreneur

What are resources? Production of economic goods 1.Land 2.Capital 3.Labor 4.Entrepreneur

What are resources? Production of economic goods 1.Land 2.Capital 3.Labor 4.Entrepreneur Limited resources ! “Scarcity”

Thus: Unlimited needs vs. Limited resources

Thus: Unlimited needs vs. Limited resources Economic Problem

Definition of Economics The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human needs. Human wants are unlimited, but the means to satisfy the wants are limited.

Unlimited needs Limited resources

Economic Problem Unlimited needs Limited resources

Economic Problem Unlimited needs Limited resources Problem of Choice

Economic Problem Unlimited needs Limited resources Problem of Choice Opportunity Cost

Scarcity and choice Resources can only be used for one purpose at a time. Scarcity requires that choices be made. we have to decide (make a choice) what we will have and what we will forgo The cost of any good, service, or activity is the value of what must be given up to obtain it (opportunity cost).

Consider This … Free for All? Products provided for “free” to an individual are not free for society because of the required use of scarce resources to produce them. Companies provide “free” goods as a marketing strategy to promote brand awareness. Products that are promoted as “free” to the individual may actually be bundled with another good for which the consumer must pay. Because a purchase is required to obtain them, these products are not really free to the buyer.

Why Study Economics? Economics for citizenship 1. Most political problems have an economic aspect, whether it is balancing the budget, fighting over the tax structure (Kuwait is planning to introduce income tax), welfare reform, international trade, or concern for the environment. 2.Both the voters and the elected officials can fulfill their role more effectively if they have an understanding of economic principles.

Why Study Economics? Professional and personal applications Economics helps people to make sense of every day activity they observe around them Economic principles enable business managers to make more intelligent decisions.

Economics can help individuals make better buying decisions, better employment choices, and better financial investments. Economics is to examine problems and decisions from a social rather than personal point of view.

Policy economics applies economic facts and principles to help resolve specific problems and to achieve certain economic goals. Steps in formulating economic policy: 1. State goals. 2. Recognize various options that can be used to achieve goals. 3. Evaluate the options on the basis of specific criteria important to decision-makers.

Macroeconomics and Microeconomics Macroeconomics examines the economy as a whole. It includes measures of total output, total employment, total income, aggregate expenditures, and the general price level. Microeconomics looks at specific economic units. It is concerned with the individual industry, firm or household and the price of specific products and resources.

Next: Ch2: THE ECONOMIZING PROBLEM