Principles of Economics BIT-116 Introduction to Economics.
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Principles of Economics BIT-116 Introduction to Economics
Definition Economics is a social science that studies the choices that individuals, businesses, governments and entire societies make as they cope up with scarcity.
Scarcity Our inability to satisfy our wants is called scarcity.
The subjects divides into two parts: Microeconomics Macroeconomics
Microeconomics Microeconomics is the study of the choices that individuals and business make, the way these choices interact, and the influences the government exerts on them.
Macroeconomics Macroeconomics is the study of the effects on the national economy and the global economy of the choices that individuals, businesses and governments make.
Three Big Microeconomics Questions What goods and services are produced? How goods and services are produced? For whom goods and services produces?
Goods and Services The objects that people value and produce to satisfy wants are called goods and services.
What we produce? Services Real Estate Retail Trade Wholesale Trade Health Education
What we produce? Goods Construction Electronic Equipment Food Industrial Equipment Chemicals
Factors of Production Factors of production are grouped into four categories: Land Labor Capital Entrepreneurship
Factors of Production Land: the gift of nature that we use to produce goods and services are called land. Labor: the work time and work effort. Capital: the tools, instruments, machines, buildings and other constructions that businesses now use to produce goods and services are called capital. Entrepreneurship: the human resources that organizes labor, land, and capital is called entrepreneurship.
Land earns rent. Labor earns wages. Capital earn interest. Entrepreneurship earns profits.
Three Big Macroeconomics Questions What determines the standard of living? What determines the cost of living? Why does our economy fluctuate?
Inflation and Deflation Inflation: a rising cost of living is called inflation. Deflation: a falling cost of living is called deflation. Business Cycle: We call the periodic but irregular up and down movement in production and jobs the business cycle. Tradeoff: is an exchange-giving up one thing to get something else.
Concept of cost of production Nominal cost: is the money cost of production. It is also called expenses of production. Real cost: pains and sacrifices of labor is regarded as real cost. Economic cost: those payments which must be received by the owners in order to ensure that they will continue to supply them in the process of production. Implicit cost: self-owned and self-employed resources such as salary of the proprietor. Explicit cost: are paid out cost. The salaries and wages paid to the employees, prices of raw materials and overheads.
Opportunity cost The highest-valued alternative that we give up to get something is the opportunity cost of the activity chosen.
Production Possibility Curve It is a curve which depicts all possible combinations of two goods which can be produced with given resources and technology in an economy.
Law of Demand The law of demand states: Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded.
Law of Supply The law of supply states: Other things remaining the same, the higher the price of a good, the greater is the quantity supplied