1. Central Problem of Economics
Theme 1
Central Problem of Economics

2. Warm up Activity Are you ready?
In groups of 3, person will take up a role as:
Consumer,
Producer
Government
Are you ready?

3. Warm up Activity
For each role, consider the following and share with your peers. Write down the key points on page 1.9 of your lecture notes
What do you think is your objective?
What are your considerations?
e.g.
- What are the resources that you will need
- Is that anything that you have to give up?
We will do a quick sharing after 10 mins.

4. Objective? Constraints Costs and benefits Information Perspective
Consumers
considerations
Consumers (players) – catch as many pokemons as possible. Complete pokedex. Win battles! – why – happy? Sense of satisfaction? --> maximize utility
What are your considerations in playing pokemon?
Time taken? (cost? – includes opp cost)
Is it Fun? (benefits)
Bonding with family/friends? (benefits)
Are there better choices? I rather play something else.. Do something else (part of information on cost and benefits of available choices)

5. Producers Objective? Constraints Costs and benefits Information
Perspective
Producers
considerations
What are your considerations ?
What are my cost? Monetary cost and opp cost (can resources be better spent in other areas?)
What are my revenue earned? – affected by demand and purchase of in-app purchases
How to strategise to earn higher profits?
Consider consumers’ perspective to come up with strategies
Notice that the demand has fallen (changes in external environment) + dangers of playing pokemon ---> decision making process again
Other producers – should I buy lures to attract my consumers? How can I tap on this to increase my profits?

6. Objective? Constraints Costs and benefits Information Perspective
Government
considerations
Does the govt need to intervene? Consider society’s cost and benefit
Negative externality?
What are your considerations ?
What are my cost? Monetary cost and opp cost (can resources be better spent in other areas?)
What are my revenue earned? – affected by demand and purchase of in-app purchases
How to strategise to earn higher profits?
Consider consumers’ perspective to come up with strategies
Notice that the demand has fallen (changes in external environment) + dangers of playing pokemon ---> decision making process again

7. Framework for economic decision making
Theme 1 (chapter 1 focus)
Framework for economic decision making

8. Framework of Economic Analysis
In any economy, there are in general 3 economic agents, each with their own objectives:
Consumers
Maximization of utility
Producers
Maximization of profit
Government
Maximization of social welfare
Disclaimer: There could be a minority who may not pursue the objectives as stated above…. Ahem…

9. Framework for Economic Decision-Making
1.8

10. Framework for Economic Decision-Making
Constraints:
Scarcity
Limited Resources
Alternative uses
Best-ranked choice
1.8

11. Framework for Economic Decision-Making
Costs and Benefits:
Monetary or non-monetary
Opportunity cost (to be elaborated)
MAXIMIZE
NET BENEFIT
= Total benefit – total cost
1.8

12. Framework for Economic Decision-Making
Information:
Cost and Benefit of available choices
Trade-offs / Opportunity cost
Intended Consequences
1.9

13. Framework for Economic Decision-Making
Perspectives:
Consider perspectives of the other key agents affected by intended outcome
Assume rational behaviour
Political and Social perspectives
1.9

14. Framework for Economic Decision-Making
Intended Consequences:
positive and/ or negative
based on the assumptions of rationality and unchanging economic conditions (ceteris paribus)
1.9

15. Framework for Economic Decision-Making
Unintended Consequences:
anticipated
Decision made under Perfect Information
unanticipated
Decision made under Imperfect Information
1.9

16. 1.5 Framework of Economic Analysis
The decision-making process becomes more complex when decisions change. This occurs when:
Intended outcomes are not achieved
Adverse unintended consequences arise
Changes to the internal and external environment.
1.9

17. 1.5 Framework of Economic Analysis
Internal Changes
changes in the objectives and the considerations of the decision-making process, i.e. constraints, information and perspectives
External Changes
changes in the external economic environment
1.9

18. Scarcity, choice and opportunity cost
Theme 1 chapter 2
Scarcity, choice and opportunity cost

19. Central Problem of Economics (CPE) - Conceptual Framework
Scarcity
Unlimited Wants
Limited resources
Choice
What & How much to produce?
How to produce?
For whom to produce
Opportunity Cost

20. 2.1.1 Scarcity
Definition:
Situation where limited resources available are unable to satisfy the unlimited human wants.
2.2

21. Scarcity ≠ Shortage!

22. Who are the top 3 richest people in the world?

23. 2.1.1 Scarcity Q - Is there scarcity problem for the super rich?
How about Trump, then?
Somewhere in the middle, as it turns out.
324. Donald Trump - $4.2 billion
Q - Is there scarcity problem for the super rich?
2.2

24. Scarcity – A “relative” concept!
What does it mean?
What are the resources?
Unlimited
Human
Wants
Limited
Resources
Scarcity is a relative concept. Relative to the unlimited wants resources are indeed limited!
2.2

25. What are the (limited) resources?
Think-Pair-Share
Land is obvious – remind them that land also covers raw materials (eg some people will say water)
But land itself – how do we use it to produce goods that consumers WANT?
Then students may say that we need labour, machines (capital)
But have we just have these 3 resources, if there are not used, nothing can be produced… so there’s a need for entrepreneurship
Ask them to refer to lecture notes while I explain each in detail
What are the (limited) resources?

26. 2.1.1 (b) Limited Resources Land Labour Capital 2.3
Entrepreneur-ship
Land - All natural resources or all productive resources made available to mankind by nature.
Labour - Any human effort, both mental and physical, used in the production of goods and services.
Capital - Some stock of physical assets (such as tools, instruments and machines) which are man-made to aid in current production. It is not meant for satisfying wants directly but it is used to produce goods which are demanded directly by consumers. So in Economics, capital is not necessarily money it can be physical, human or financial. In this case, we are concerned with physical capital.
Entre - The human resource that organizes land, labour and capital in production. Entrepreneurs come up with new ideas about what and how much to produce, make business decisions, and bear risks that arise from these decisions. Without entrepreneurship, virtually no business organisation can operate.
2.3

27. 2.1.1 (b) Land Land: all free gifts of nature
Eg. rivers, soil, water, mineral deposits
2.3

28. 2.1.1 (b) Labour Labour: human effort, both mental and physical
Quality depends on human capital
2.3

29. 2.1.1 (b) Capital
Stock of physical assets which are man-made to aid in current production
Physical Capital
buildings (warehouse, factories), machinery, semi-finished goods.
Financial Capital
In this case, we are concerned with physical capital.
Financial capital is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based, i.e. retail, corporate, investment banking, etc.
Bcos financial capital is not used to produce goods and services, it is not a productive resource.
2.3

30. 2.1.1 (b) Entrepreneurship organises other factors of production
Land, labour, capital
risk-taking and decision-making
Li Hejun, with a net worth of $26 billion
Human resources who take risk and innovate
Entrepreneurs bring together land, labour and capital in production to make profits
Who else??
Jack Ma
2.3

31. BEE Question 4 (p2.5)
In pairs/threes: Explain the resource constraints facing our country, Singapore. Key in your answers. We will discuss in about 15 minutes time.

32. Since resources are scarce, how do we allocate the resources?

33. Since resources are scarce, how do we allocate the resources?
SYSTEM
What are the 3 Economic systems?

34. Economic System For whom to produce How to produce SCARCITY CHOICE
What & How much to produce
How to produce
For whom to produce
OPPORTUNITY COST
Trade offs= having more of one thing mean having less of another
2.1

35. Read on PPC concept (Chapter 2) before the next lecture
Review Chapter 1 – 3.
Read on PPC concept (Chapter 2) before the next lecture
Look out for EMB/Moodle announcements regularly regarding when to collect notes, tutorials and skill packages
$$ Deposit sum for the entire term

36. Any Burning questions? You can also post lecture feedback
THE END
Any Burning questions? You can also post lecture feedback
TinyURL.com/hv9lozv