1. T HE SUBJECT OF E CONOMICS. T HE PROBLEM OF EFFICIENCY Professor Lyudmila Vasylievna Shcvaria

2. M AIN ISSUES 1. What does the Economics study? (THE SUBJECT MATTER OF ECONOMICS); 2. Key concepts of economics; 3. The problem of efficiency 2

3. E CONOMICS IS “…a study of mankind in the ordinary business of life.” Alfred Marshall 3

4. E CONOMICS IS “…the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses.” Lionel Charles Robbins In: L.Robbins. An Essay on the Nature and Significance of Economic Science. 2nd ed. London: Macmillan, 1935, ch.1, p.1–23. 4

5. E CONOMICS STUDIES the general regularities in the behavior of people and the economic system as a whole in the process of production, distribution, exchange and consumption of wealth in resource-limited settings. 5

6. Economic system, economy The main spheres of human activity production exchange distribution consumption 6

7. in production the members of society appropriate (create, shape) the products of nature in accord with human needs; distribution determines the proportion in which the individual shares in the product; exchange delivers the particular products into which the individual desires to convert the portion which distribution has assigned to him; and finally, in consumption, the products become objects of gratification, of individual appropriation. 7

8. E CONOMY IS A SYSTEM of institutions and organizations that either help to facilitate or directly involved in the production, distribution, exchange and consumption of goods and services. 8

9. 9

10. 10

11. 11

12. C LASSIFICATION CRITERIA 12

13. E CONOMIC RESOURCES ARE the factors (the inputs) are used in producing goods or providing services to meet the needs. 13

14. 14 Economic resources Labor Entrepre neurship LandCapital

15. L ABOR the human capital available to transform raw or national resources into consumer goods includes all able-bodied individuals capable of working in the national economy and providing various services to other individuals or businesses is a flexible resource as workers can be allocated to different areas of the economy for producing consumer goods or services can also be improved through training or educating workers to complete technical functions or business tasks when working with other economic resources. 15

16. L AND is the economic resource encompassing natural resources found within a national economy includes timber, land, fisheries, farms and other similar natural resources is usually a limited resource for many economies. Although some natural resources, such as timber, food and animals, are renewable, the physical land is usually a fixed resource it is important to use land resource carefully by creating a mix of natural and industrial uses. Using land for industrial purposes allows nations to improve the production processes for turning natural resources into consumer goods. 16

17. C APITAL Capital has two economic definitions as a factor of production. Capital can represent the monetary resources companies use to purchase natural resources, land and other capital goods. Monetary resources flow through a national economy as individuals buy and sell resources to individuals and businesses. Capital also represents the major physical assets individuals and companies use when producing goods or services. These assets include buildings, production facilities, equipment, vehicles and other similar items. Individuals may create their own capital production resources, purchase them from another individual or business or lease them for a specific amount of time from individuals or other businesses. 17

18. E NTREPRENEURSHIP is considered a factor of production because economic resources can exist in an economy and not be transformed into consumer goods usually have an idea for creating a valuable good or service and assume the risk involved with transforming economic resources into consumer products is also considered a factor of production since someone must complete the managerial functions of gathering, allocating and distributing economic resources or consumer products to individuals and other businesses in the economy 18

19. S O, THE KEY CONCEPTS OF ECONOMICS ARE Economics Production Distribution Exchange Consumption Labor (labor productivity, division of labor) Capital Land Entrepreneurship Three Basic Problems of economics 19

20. T HREE B ASIC P ROBLEMS OF ECONOMICS What to produce and in what quantities? How should the various goods and services be produced? For whom the various goods and services be produced? (How should the various goods and services be distributed?) 20

21. E CONOMICS IS a social science studying the economic system, the processes of production, distribution, exchange, and consumption of goods and services. Economists focus on the way in which individuals, groups, business enterprises, and governments try to achieve efficiently any economic objective they select. 21

22. T HE PROBLEM OF ( ECONOMIC ) EFFICIENCY is the ratio between an output and the cost of factors that made it possible 22

23. The production becomes efficient only if the productive resources are so utilized that any reallocation does not produce more of one good without reducing the output of any other good. 23 The curve of production capacity

24. T HUS, limited resources and unlimited human needs make it necessary to use resources economically and efficiently; involves the selection of alternative ways for production of different types of products; leads to the opportunity cost of production of a type of product. 24