Dr. Ahmed El- Feqi Ph.D Candidate in Economics. Masters In Economics, University of East Anglia, England. B.A in Economics, Alex. University. Ford Foundation member, U.S.A. International Fellowship Programe, U.S.A. Amideast, Cairo member. Delta University teaching assistant.
Microeconomics, First Year, Faculty of Commerce , English Section
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Dr. Ahmed El-Feqi Ph.D Candidate in Economics. Masters In Economics, University of East
Anglia, England. B.A in Economics, Alex. University. Ford Foundation member, U.S.A. International Fellowship Programe, U.S.A. Amideast, Cairo member. Delta University teaching assistant.
E. Napp
Studying Economics will help us in ourdaily lives.
Chapter 1 Scarcity & Choice
Only I can change my life. No one can do it for me.
What is Economics?
Economics is the study of how individuals and societies use their scarce resources to satisfy their unlimited wants.
Scarce = limited Resources = things used to make
other things (goods & services)
What is the difference between a want and a need?Wants are items that we desire but are not necessary for survival.
Needs are something like air, food, or shelter that are necessary for survival.
How do we satisfy our wants and needs? We buy goods and services.
What are “Goods”? Ex: clothes or shoes
What are “Services” ? activities that one person performs for another
such as haircuts or , Doctor, Teacher.
Why do we have to make choices about which goods or services we can buy?
The resources used to make goods and services are scarce. That makes the goods and services scarce.
What is the difference between scarcity and shortage?
Scarcity means that there is a limited quantity of resources to meet unlimited wants and needs.
Shortage is a situation where a good or a service is temporarily unavailable.
All goods and services are produced using resources.
Factors of Production = resources that are used to make all goods and services.
What are the factors of production?
Land, Labor, Capital, Entrepreneurship
Resources – Factors of Production
Natural resources (Land)– “free gifts of nature” Land, minerals, oil, forests, air, and timber
Capital Resources – “manufactured aids to production” Tools, machines, equipment, factories
Human Resources (Labor)– physical and mental talent” These are the skills people have that are used to produce goods and services.
Entrepreneur – the individual who combines the factors of production in order to produce a good or service. Risk taker, policy maker, and innovator
Land
Labor
Capital
L and
G o od o r S ev ice(O u tp u t)
L ab or C a p ita l
R e so u rces(In p u ts)
Consumers buys
things they need or want.
Factors of Production Model
LAND - cotton
LABOR -seamstress
CAPITAL – thread, sewing machine.
ENTREPRENEUR –designer, business owner
GOOD – t-shirt
Factors of Production
Land
Labor Capital
Enterprise
Rent ProfitInterestWages
INCOME
Payments
to factors
of Producti
on
What is scarce? Everything is scarce because our wants
ALWAYS exceed the limited resources available.
Simply put… Economics is: Economics=Scarcity
And the definition of Scarcity is Scarcity = wants > availability of
resources
E. Napp
Scarcity
To think like an Economist, you must always remember that scarcity exists.
You may only have ten dollars in your pocket but you can certainly think of a hundred different ways to spend it.
E. Napp
So, how do we choose?
Basic Economic TermsEconomics The study of how individuals and societies use their scarce
resources to satisfy unlimited needs.
Scarcity Limited; time, money, resources.
Resources Factors of production; land, labor, capital
Human wants are unlimited, but resources are limited.
Scarcity of resources necessity of choices
Opportunity cost: is the forgone value of the next best alternative
Types of Economics Macroeconomics –deals with the economic
decisions of large bodies like the government. Theories of Economics Countries and their governments Trade between countries
Microeconomics –deals with decisions of smaller unit like individuals and firms. Families = Households Firms = Factories
Production Possibilities Frontier:a graph show infinite number of points. Each point represents a combination of output for a fixed amount of inputs and available technology.
More of one good less of another
Illustrates opportunity costs in production
TABLE 2-1 Production Possibilities Open to a Farmer
FIGURE 2-1 PPF for Production by a Single Firm
Attainable region So
yb
ea
ns
Wheat
E
D
C
B
A Unattainable region
60 65 52 38 30 20 10 0
10
20
30
40
Shape: concave
Principle of increasing costs:
opportunity cost of producing another good
Reason: Inputs tend to be specialized.
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Dr. Ahmed El-Feqi
Production Possibilities Curve
Points on the curve : Attainable & efficient.
Points inside the curve : attainable and inefficient or underemployment
Points outside the curve are unattainable at present.
Optimal or best product will some point on the curve.
Efficiency and the production possibilities frontier:
Efficiency = no waste.
Every point on a production possibilities frontier is efficient.
Any point inside the frontier is inefficient.
Scarcity & PPC
Points A & B desirable; “best”?
Point C is not possible
Point D is inefficient
To increase production of guns; Must decrease production of butter.
Economic growth = increase in production of goods and services.
Outward shifts of the curve represent economic growth.
production shift of the frontierLabor SkillsTechnologyCapital stockLand