1. Fundamental Concepts of Economics
Akelyev Evgeny
PhD, Associate professor
Department of Economics, TPU

2. . . . The word economy comes from a Greek word for “one who manages a household.”
Plato
Aristotle

3. Economics is
the study of how we can best increase a country’s wealth with the resources that we have available to us.

4. Society and Scarce Resources
The management of society’s resources is important because resources are scarce.
Scarcity. . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have.

5. Microeconomics
Price elasticity (sensitivity) of demand for goods and services,
firms’ production behavior,
cost functions,

6. Macroeconomics
The nation's unemployment rate, inflation, interest rate trends, government budgets, government fiscal policies, economic growth, monetary policy,

7. People Face Tradeoffs.

8. Making decisions requires trading off one goal against another
To get one thing, we usually have to give up another thing.
Guns v. butter
Food v. clothing
Leisure time v. work
Efficiency v. equity
Making decisions requires trading off one goal against another

9. Efficiency v. Equity
Efficiency means society gets the most that it can from its scarce resources.
Equity means the benefits of those resources are distributed fairly among the members of society.

10. The Cost of Something Is What You Give Up to Get It.
Decisions require comparing costs and benefits of alternatives.
Whether to go to college or to work?
Whether to study or go out on a date?
Whether to go to class or sleep in?
The opportunity cost of an item is what you give up to obtain that item.

11. The Production Possibilities Curve
represents outcome or production combinations that can be produced with a given amount of resources.

12. The Production Possibilities Curve
GUNS E
600 C F
500 B
400 G A
300 D
ROSES
350
500
580
700

13. Economic Growth Is Caused by:
If an economy is operating at a point on the production possibilities curve, all resources are used, and they are utilized as efficiently as possible.
Economic Growth Is Caused by:
GUNS E
600 C F
500 B
400 G A
300 D
ROSES
350
500
580
700

14. The Cost of Something Is What You Give Up to Get It.
Decisions require comparing costs and benefits of alternatives.
Whether to go to college or to work?
Whether to study or go out on a date?
Whether to go to class or sleep in?
The opportunity cost of an item is what you give up to obtain that item.

15. Rational People Think at the Margin.
Marginal changes are small, incremental adjustments to an existing plan of action.
People make decisions by comparing costs and benefits at the margin.

16. Marginal changes in costs or benefits motivate people to respond.
The decision to choose one alternative over another occurs when that alternative’s marginal benefits exceed its marginal costs!

17. Three Economic Systems are:
Market economy (Capitalism)
Command economy (Communism)
Mixed economy (Socialism)

18. Capitalism Characteristics
The role of the government is limited to the most essential functions.
All prices are determined in the free market (supply and demand).

19. Command economics Characteristics
Government makes all decisions regarding production, prices, wages, interest rates, and income distribution.

26. Socialism (Mixed Economy) Characteristics
Most economic decisions are made by the private sector, but the role of the government is significant. Government spending and taxes are relatively high.

27. China economy

28. Economic Growth and Economic Systems
Countries with the highest overall economic standard of living have the freest markets (more elements of capitalism). Examples: Hong Kong, the United States, Japan, Taiwan, Great Britain, Canada, Sweden, South Korea, and Singapore.

29. Economies around the World
Most industrialized countries are mixed economies, but they also have many capitalist elements. Characteristics include
Substantial activity in the private sector (businesses and households). Prices are determined by demand and supply.
A significant role by federal and local governments.

30. The Role of Government
The role of most governments around the world includes:
Spending on defense, roads, legal system, public services and education
Redistributing incomes through taxes and subsidies
Passing laws and imposing regulations
Implementing price controls
Conducting monetary policy to affect inflation, interest rates, and employment

31. The Simple Circular Flow
Supply of Products
Products Market
Purchases of (Demand for) Products
Households
Businesses
Supply of Labor and Resources
Resource (Inputs) Market
Purchases of (Demand for) Labor and Resources

32. Government The circular flow with government and foreign markets
Products Market
Purchases of Products
Products
Services
Services
Government
Households
Businesses
Taxes
Taxes
Resource (Inputs) Market
Supply of Labor and Resources
Purchases of (Demand for) Labor and Resources

33. Positive and Normative Economic Statements
A positive statement can be proven or disproven.
A normative statement is an opinion or value judgment.

34. Which is the Normative and Which is the Positive Economic Statement?
Statement I: The minimum wage should increase to $8.50.
Statement II: If the minimum wage increases, then firms’ cost of production rises.