1. Tutorial 1 Introduction to Economics 1

2. LEARNING OUTCOMES The term “economy” 2. Difference between microeconomics and macroeconomics; 3.The three basic economic problems; 4. Concepts of scarcity, choice, and opportunity cost using the production possibility curve; 5. How an economic system answers the three basic economic questions 6. Assess the process of circular flow of income in an economy without governmental intervention. 2

3. INTRODUCTION Economy is a theory that affects the lives of individuals and society as a whole Social systems where individuals interacted to satisfy unlimited wants Definition – research on how a society utilises limited resources to satisfy their unlimited wants due to resource scarcity Economic method – orderly way of generating facts through scientific research Theory – conclusion made through general observation 3

4. THE SCOPE AND METHOD OF ECONOMICS STUDIES 4

5. Microeconomics and Macroeconomics Microeconomics Macroeconomics The market forces of demand and supply; elasticity and its application; the theory of consumer choice; consumers, producers, and the efficiency of markets; the costs of production; firms in competitive markets; monopoly; oligopoly; monopolistic competition; markets for the factors of production; the demand for resource s ; production and growth; savings investment and the financial system; Unemployment rate; money growth and inflation; open-economy concepts; aggregate demand and aggregate supply; monetary and fiscal policy on aggregate demand; five debates over macroeconomic policies 5

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7. SCARCITY, CHOICE AND OPPORTUNITY COST Scarcity problem emerges when our material needs exceed the ability to fulfil them due to limited resources. Individuals and society need to make choices among various alternatives; and opportunity cost is the value for the best alternative forgone. 7

8. PRODUCTION LIMITATIONS Firstly, assume that the economy produces only two types of goods, that is, consumer goods and capital goods. Secondly, both goods can be produced using the same economic resources. Thirdly, in the short run, resource provision and level of technology remain constant. Fourthly, economic resources will be utilised fully and efficiently. 8

9. Production possibilities curve 9

10. Production Possibility Table CombinationConsumer Goods (Unit) Capital goods (Unit) A015 B414 C712 D99 E115 F120 10

11. Production possibility curve 11

12. Shift in production possibility curve 12

13. Shift in production possibility curve 13

14. Choice of production combination 14

15. Effects of the choice of production combination 15

16. BASIC ECONOMIC QUESTIONS AND ECONOMIC SYSTEMS 16

17. What Should be Produced Society needs to determine the types of goods and services to be produced using limited resources to maximise satisfaction. The selected combination must be in PPC as it is the efficient production combination. When the type of output required has been identified, the society has to determine the production amount for every output chosen. The indifference curve of the society indicates the relative importance for every product in the society’s point of view. If the society chooses to produce more consumer goods, then the consumer goods for current use will give more satisfaction compared to the capital goods that can increase production in the future. 17

18. How Should it be Produced? After deciding on the type and quantity of the output to be produced, then comes the question of how it should be produced. Mechanism that can transfer resources from low- demand industry to the industry with higher demand. In free-market economy, this task is carried out by the market mechanism. Resources are distributed through the process of demand and supply. this process, resources will shift into the industry that offers the highest pay. Firms in the industry have to utilise resources efficiently too. 18

19. For Whom Should it be Produced? After being produced, goods and services have to be distributed. Consumer goods will be disseminated to consumers while capital goods to firms. A mechanism should be available for this purpose. In the free-market economy, this task is carried out by the price mechanism. All consumers and producers who can afford to buy the economic product at the stated market price will be able to obtain what they require 19

20. Economic Systems Societies based on traditional occupational systems System where decisions are made by the market systems All economic and social activities are controlled & regulated by a body Where both the market forces and the government work side by side to solve the economic problems 20

21. CIRCULAR FLOW OF INCOME AND EXPENDITURE Groups within the society in the market economy 21

22. Circular flow of production and goods factors 22

23. Summary 23

24. Past Year Questions Distinguish between microeconomics and macroeconomics How can problems of scarcity be resolved? Explain the characteristics of the Production Possibility Curve (PPC). Explain the THREE basic economic questions 24