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

Land Items found in nature

Labor Work done by people

Capital Tools, equipment, factory, building NOT $

Goods Tangible items of value; computer

Services Intangible items of value; fixing a car

Producer Business who sells goods/services

Consumer People who buys goods/services

Dr. Ahmed El-Feqi

Limited Resources & Unlimited Wants

Scarcity

Choices

Opportunity Cost

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

Economic Growth Allows for More of Everything

“There’s no such thing as a free lunch”