Economics

ECONOMICS

OBJECTIVES

To review and understand the definition of economics.

To know the two branches of economics. To differentiate positive and normative

economics. To know the use economics in our

economy. To understand why do we need to study

economics

What is Economics?

Economics is derived from two Greek words, Oikos- a house and Nemein- to manage. Means “managing an household”

-Adam smith (Father of Economics), defined economics as the practical science of production and distribution of wealth.

What is Economics?

-Lionel Robbins According to him, “economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses”

What is Economics?

-Prof. Paul Samuelson (Growth definition)defined economics as “the study of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time, and distribute them for consumption, now and in the future among various people and groups of society”

DEFINITIONS OF BASIC TERMS Supply - the willingness and ability of a

producer to produce and sell a product. demand - the desire to have some good

service and the ability to pay for it. profit - the financial gain a seller make

from a business transaction; the money left over after the costs of producing a product are subtracted from the income gained by selling the product.

labor - all the human time ,effort, and talent used to produce goods and services

DEFINITIONS OF BASIC TERMS resources - the collective wealth of a

country or its means of producing goods and services.

opportunity cost - the value of something that is given up by choosing one alternative over another.

trade off - the alternative someone gives up when making an economic choice.

competition - the effort of two or more people acting independently to get business by offering the best deal

DEFINITIONS OF BASIC TERMS scarcity - a situation that exists

when there are not enough resources to meet human wants.

stock - shares of ownership in a corporation.

risk - the possibility for loss on an investment.

entrepreneur - risk-taking individual in search of profits; one of four factors of production

DEFINITIONS OF BASIC TERMS sole proprietor - a business owned

and controlled by one person. corporation - a business owned by

shareholders, who own the rights to company's profits but face only limited liability for the company's debts and losses.

partnership - a business co-owned by two or more people, or "partners," who agree on how responsibilities, profits, and losses should be divided.

DEFINITIONS OF BASIC TERMS free enterprise - another name for

capitalism, an economic system based on private ownership of productive resources.

goods - physical objects, such as food, clothing, and furniture, that can be purchased.

service - work that one person does for another for payment.

needs - thing such as food, clothing, and shelter that are necessary for survival.

wants - desires that can be satisfied by consuming a good or service

Divisions in Economic

Consumption is the branch of economics that is concerned with spending by households and firms on goods and services. Consumer spending is significant; it makes up two-thirds of the U.S. gross domestic product.

Distribution examines the allocation of the national income among various inputs, or factors of production. Distribution also can refer to the distribution of income among individuals and households.

Divisions in Economic

Exchange refers to the buying and selling of goods and services, either through barter or the medium of money. In most economies, exchange occurs in a market, the medium that brings together consumers and producers.

Production involves combining inputs or factors, such as land, labor and capital, to produce goods and services. Economists use a production function to study the relationship between inputs and the goods and services produced.

Types of Utilities Created In Production

Time Ensuring a product is available when the customer wants it adheres to time utility. Consumer demand for products varies depending on the weather, holiday season or everyday wants and needs.

Place utility is the value consumers put on where they purchase products. Stores make it easier for the consumers to purchase items, as opposed to driving to a factory or warehouse where the products are manufactured or stored.

Types of Utilities Created In Production

Possession utility is the value consumers put on purchasing a product and having the freedom to use the product as it was intended or finding a new use for the product.

Form utility is the value a consumer sees in a finished product.

Factors of Production

LandLaborCapitalEntrepreneur

Branches of Economics

Microeconomics-one country only (national)

Macroeconomics-worldwide, global

Positive Economics vs. Normative Economics

Positive Economics It only describes what it is Positive science does not indicate what is good

or what is bad to the society. It will simply provide results of economic

analysis of a problem. A positive statement is based on facts.Normative economics It makes distinction between good and bad. It prescribes what should be done to promote

human welfare. A normative statement involves ethical values.

Uses of Economics

Identification: Economics is the study of how societies allocate scarce resources. Society's wants are unlimited, but the means for satisfying them are limited. Economists study how societies determine what to produce, how to produce and for whom.

Benefits: Knowledge of basic economic principles such as supply and demand strengthens students' understanding of economic activity, and of the interactions of consumers and businesses.

Uses of Economics

Significance: Increasingly, economic activity occurs on a global scale, with goods and services circulating among nations faster and with greater frequency. The study of economics deepens student understanding of world economic events and how they affect the domestic economy.

Informed Citizens: Government policy has an economic dimension to it, and actions by elected officials can have positive or negative economic consequences. Knowledge of economics provides a more sophisticated understanding of government policy and its effects.

Uses of Economics

News and Current Events: Economic events at home and abroad are a staple of print and broadcast news. Studying economics brings a greater understanding of events in the news and how they impact you as an individual.