Post on 30-May-2018
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Economics
Prepared by: Waqas Mazhar
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LOGOEconomic Problem:
Human Needsand wants
Resources
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Unlimited Needs
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LOGOWhat is Economics?
Scarcity
Choice
Scarcity is theproblem of infinitehuman needs andwants, in a world of
finite resources
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Economics is the study ofhow societies choose to usescarce productive resourcesthat have alternative uses, to
produce commodities ofvarious kinds, and to distributethem among different groups.
Economics is a behavioral, orsocial, science
DEFINITIONDEFINITION
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LOGOAdam Smith
Economics is the social
science that studies
Production of wealth
Distribution of wealth Exchange of wealth
Consumption of wealth
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LOGOFactors of Production
Land Labor
Capital Enterprise
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LOGOLand
Farmland Open Space
Water Minerals
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LOGOLabor
Time Muscle Power
Brainpower
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LOGOCapital
Buildings Machinery
Equipment Roads Bridges
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LOGOWHY STUDY ECONOMICS?WHY STUDY ECONOMICS?
There are four main reasons to study economics:
to learn a way of thinking,
to understand society, to understand global affairs, and to be an informed voter.
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Scarcity id defined as: Insufficiency ofamount or supply
Scarcity is basic problem which assumes
that human wants will always exceed theresources available to fulfill those wants.
Efficiency is defined as ability toaccomplish a job with a minimum
expenditure of time and effort:
SCARCITY & EFFICIENCYSCARCITY & EFFICIENCY
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LOGOMicroeconomics
Microeconomics is a branch ofeconomics that studies how
individuals, households and firms andsome states make decisions to
allocate limited resources
Microeconomics is the study of thedecisions of people and businesses and theinteraction of those decisions in markets.
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LOGOMacroeconomics
Macroeconomics is concerned withoverall performance of an economy.
Macroeconomics is the study of thenational economy and the global economyand the way that economic aggregatesgrow and fluctuate.
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What Do Economist go about their
tasks?
Scientific Approach
Observations, study, and experiments Using tools of Statistics
Draw simple relation between twovariable Then policy making
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LOGOPolicy
A policy is typically described as a planor course of action.
The term may apply to government,private sector organizations and groups,
and individuals.
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LOGOTheory
In science, the word theoryis used as ageneral principle or body of principlesoffered to explain a phenomenon.
One or more Statements
Or General principle With logical framework Describing any fact or phenomenon
Helps in decision
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LOGOCautions and pitfalls
Post Hoc Fallacy:
Looking at two events that happen in
sequence and assuming that first
caused second to happen
Event A Event B
Price rises Consumption of Goods and
services decreases
Producing more goods and
services
Increase in Income
Improvement in training of
workers
Increase in more output
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LOGOCautions and pitfalls
Fallacy of Composition:What is true for part is true for the whole.
When you increase your production you will earn more
Firm increase the productionform 2000 to 3000 units of
products
The profit of companyincrease from 100,000 to
150,000 rupees.
When all producers in the market is following it then there will be large
amount of supply
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Three Questions in Economics
What goods and services to produce? Pizza or Shirts, Guns or Food
How to produce? Labor Intensive
Capital Intensive For whom to produce?
Depends on the distribution of Wealth in Society
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LOGOApproaches to Economics
To address three questions
Positive Economics_an approachto economics that describes what
exist, how it works.Normative Economics_an
approach to economics that analyzes
outcomes of economics behavior,
evaluate them as good or bad andmay prescribe course of action
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LOGO
Market, Command and Mixed
Economies
To answer three questions of
Economics Societies decides to
adapt the economic system.
Command Economy Market Economy Mixed Economy
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LOGO
Market, Command and Mixed
Economies
Government
Individuals
Who will take decision of what, how and to whom to
produce goods and services.
Decisions
Price
Quantity
Wage
Rent
etc
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LOGOMarket Economy
In which individuals and private
firms make major decisions
about production and
consumptions
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LOGOCommand Economy
In which Government make all important
decisions about production and
distribution
Government own means of production Employees the workers How output will be distributed in
society
Price fixing
Minimum wage
How much toproduce
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LOGO
Mixed Economy
With elements of Market and Command
Governmen
t
IndividualsMixed
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LOGOInputs and Outputs
Inputs:
Commodities or services that are used to
produce goods and services.
Output:Various useful goods and services that
result from production and are either
consumed or employed for further
production.
ManufacturingInputs Outputs
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LOGOInputs and Outputs
ManufacturingInputs Outputs
Land
Labor
Capital
Goods
services
Converting inputs
into outputs
Production process
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LOGOProduction Possibility Frontier
Societies can not have everything they want
Where to allocate resources
Production possibility frontier (PPF): A
graph that shows all the combinations ofgoods and services that can be produced
if all of societys resources are used
efficiently.
A production possibility curveA production possibility curve
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Units of clothing (millions)
Unitso
ffood(million
s)
Units of food Units of clothing
(millions) (millions)
8m 0.0
7m 2.2m
6m 4.0m
5m 5.0m
4m 5.6m
3m 6.0m2m 6.4m
1m 6.7m
0 7.0m
A production possibility curveA production possibility curve
A production possibility curveA production possibility curve
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Units of clothing (millions)
Unitso
ffood(million
s)
Units of food Units of clothing
(millions) (millions)
a 8m 0.0
7m 2.2m
6m 4.0m
5m 5.0m
4m 5.6m
3m 6.0m2m 6.4m
1m 6.7m
0 7.0m
a
A production possibility curveA production possibility curve
A production possibility curveA production possibility curve
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Units of clothing (millions)
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Units of food Units of clothing
(millions) (millions)
8m 0.0
b 7m 2.2m
6m 4.0m
5m 5.0m
4m 5.6m
3m 6.0m2m 6.4m
1m 6.7m
0 7.0m
b
A production possibility curveA production possibility curve
A production possibility curveA production possibility curve
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Units of clothing (millions)
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ffood(million
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Units of food Units of clothing
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8m 0.0
7m 2.2m
c 6m 4.0m
5m 5.0m
4m 5.6m
3m 6.0m2m 6.4m
1m 6.7m
0 7.0m
c
A production possibility curveA production possibility curve
A production possibility curveA production possibility curve
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Units of food Units of clothing
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8m 0.0
7m 2.2m
6m 4.0m
5m 5.0m
4m 5.6m
3m 6.0m2m 6.4m
1m 6.7m
0 7.0m
A production possibility curveA production possibility curve
A production possibility curveA production possibility curve
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A production possibility curveA production possibility curve
A production possibility curveA production possibility curve
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A production possibility curveA production possibility curve
w
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Production Possibility Frontier
(continue)
Unemployment Of Resources:resources not in use/production.
Opportunity Cost: Sacrifices/foregoneoutput
Economic Growth An increase in thetotal output of an economy. It occurswhen a society acquires new resources or
when it learns to produce more using
existing resources.
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LOGOOpportunity Cost
Definition the cost expressed in terms ofthe next best alternative sacrificed
Helps us view the true cost of decision making
Implies valuing different choices
What is your opportunity cost of being heretoday??
Costs are typically expressed in terms ofmoney or time.
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LOGOOpportunity Cost
Education takes time. Timespent in the classroomhas an opportunity cost.
Economic Growth Shifts the PPF Outward
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Economic Growth Shifts the PPFOutward
Investment for Future Consumption Requires Sacrificing Current
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Investment for Future Consumption Requires Sacrificing Current
Consumption
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Six Possible Pairs of Food-Machine Production Levels
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Six Possible Pairs of Food Machine Production Levels
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A Production-Possibility Frontier
Shift of Curves versus
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Movement along Curves
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