1. Yousef Hani

2. Economicshas various definitions, such as; The art of handling scarce resources The study of choice How society chooses to allocate its scarceresources among competing demands to bestsatisfy human wants 3. Microeconomics: is generally the study ofindividuals and business decisionsregarding the allocation of resources, andpricesofgoods and services. Macroeconomics: looks at a higher level(countryandgovernmentdecisions), studies the behavior of theeconomy as a whole and not just onspecific companies, but entire industriesand economies. 4. The Economic problem is summed up in 4 points; Unlimited Wants Scarce Resources Land, Labour, Capital Resource Use Choices 5. It simply means that people are never totallysatisfied with the quantity and variety of goodsand services they consume. It means that people never get enough, thattheres always something else that they wouldwant or need. 6. It states that society has insufficient productiveresources to fulfill all human wants and needs. Alternatively, scarcity implies that not all ofsocietys goals can be pursued at the same time;tradeoffs are made of one good against others. 7. Since we established already that resourcesare scarce, so the use of these scarceresources becomes the most important aspectof all. Proper and efficient management of thesescarce resources is the key to success andprosperity. 8. Choices are inevitable because human wants and needs are unlimited but the resources available to meet them are finite. Examples: What is to be produced? How is it to be produced? For whom will it be produced? 9. Economists define Efficiency as the absence of Waste. An efficient economy utilizes all of its available resources and produces the maximum amount of output that its technology permits. 10. o For many reasons, such as; Unemployment: which is the most important wasteof all, waste of human resources. Assigning inputs to the wrong task: Like using a dryland to grow rice and a rainy land to grow sesame! Poor Management: Failure in managing the decisionmaking process leading to waste in resources. 11. Opportunity cost is what a person sacrificeswhen they choose anoption overanother, the cost of an alternative that mustbe forgone in order to pursue a certain action.Put another way, the benefits you could havereceived by taking an alternative action.o Example: The opportunity cost of going tocollege is the money you would have earned ifyou worked instead. On the one hand, you losefour years of salary while getting your degree;on the other hand, you hope to earn moreduringyourcareer,thanks to youreducation, to offset the lost wages. 12. Inall cases, a choice between two options must be made. It would be an easy decision if you knew the end outcome; however, the risk that you could achieve greater "benefits" (be they monetary or otherwise) with another option is the opportunity cost. 13. Whats Comparative Advantage: A situation in which a country, individual, company or even region can produce a good at a lower opportunity cost than a competitor. 14. Economists believe that if all people and allcountries used their comparative advantages tospecialize in what they do best it will fosterefficiency in more profound sense. The reason is that; people, businesses & nationshave different abilities, some can repairautomobiles, whereas others are wizards withnumbers, some are handy with computers, andother can cook. And Economy will be most efficientif people specialize in doing what they do best andthen trade with one another. 15. One of the problems with comparative advantage isthat it assumes that there are no barriers totrade/protectionist measures or any transportcosts. In reality, these two would add to or takeaway from the cost of trading, therefore making aweaker/stronger case for trade. The model of comparative advantage also assumesthat there are only two countries involved, andthey make only two goods, which is, of course, notthe case. Similarly, the theory assumes thatcountries can switch production from one thing toanother without any sort of cost or time delay. 16. Another criticism of the theory is that whilespecialization in some instances is good, it canmean that an economy becomes dependent ontrade, and isnt self-sufficient. This may not be aproblem, but if tastes change or if the markettakes a turn for the worse for the countrys mainexport, then the entire welfare of the countrycould be compromised. The final criticism of the theory is that itleaves out the fact that international trade andinternational politics are strongly linked. (EX:USA cant import from IRAN even if IRAN hasthe best and cheapest products ever). 17. o Demand and supply is perhaps one of the mostfundamental concepts of economics and it isthe backbone of a market economy. Demand refers to how much (quantity) of aproduct or service is desired by buyers. Thequantity demanded is the amount of aproduct people are willing to buy at a certainprice; the relationship between price andquantity demanded is known as the demandrelationship. 18. Supply represents how much the market can offer.The quantity supplied refers to the amount of acertain good producers are willing to supply whenreceiving a certain price. The correlation between priceand how much of a good or service is supplied to themarket is known as the supply relationship.Price, therefore, is a reflection of supply and demand.The relationship between demand and supply underliethe forces behind the allocation of resources. In marketeconomy theories, demand and supply theory willallocate resources in the most efficient way possible.Through the law of demand and the law of supply. 19. The law of demand states that, if all other factorsremain equal, the higher the price of a good, the lesspeople will demand that good. In other words, the higher the price, the lower thequantity demanded. The amount of a good thatbuyers purchase at a higher price is less because asthe price of a good goes up, so does the opportunitycost of buying that good. As a result, people willnaturally avoid buying a product that will force themto forgo the consumption of something else theyvalue more. The chart below shows that the curve isa downward slope. 20. Like the law of demand, the law of supplydemonstrates the quantities that will be sold at acertain price. But unlike the law of demand, the supply relationshipshows an upward slope. This means that the higher the price, the higher thequantity supplied. Producers supply more at a higherprice because selling a higher quantity at a higherprice increases revenue. 21. When supply and demand are equal (i.e. when thesupply function and demand function intersect) theeconomy is said to be at equilibrium. At this point, the allocation of goods is at its mostefficient because the amount of goods being suppliedis exactly the same as the amount of goods beingdemanded. Thus, everyone (individuals, firms, orcountries) is satisfied with the current economiccondition. At the given price, suppliers are selling allthe goods that they have produced and consumersare getting all the goods that they are demanding. 22. Market structure is best defined as theorganizational and other characteristicsof a market. We focus on those characteristics whichaffect the nature of competition andpricing 23. Monopoly Perfect Competition Oligopoly Monopolistic competition 24. A situation in which a single company or group ownsall or nearly all of the market for a given type ofproduct or service. By definition, monopoly ischaracterized by an absence of competition, whichoften results in high prices and inferior products. According to a strict academic definition, a monopolyis a market containing a single firm. Antimonopoly regulation protects free markets frombeing dominated by a single entity. 25. Only one single seller in the market. There is nocompetition. There are many buyers in the market. The firm enjoys abnormal profits. The seller controls the prices. Consumers dont have perfect information. There are barriers making it nearly impossible toentre the market. These barriers may be natural orartificial. The product does not have close substitutes. 26. Monopoly avoids duplication and hence wastage of resources. A monopoly enjoys economics of scale as it is the only supplier ofproduct or service in the market. The benefits can be passed onto the consumers. Due to the fact that monopolies make lot of profits, it can beused for research and development and to maintain their statusas a monopoly. Monopolies may use price discrimination which benefits theeconomically weaker sections of the society. For example, Indianrailways provide discounts to students travelling through itsnetwork. Monopolies can afford to invest in latest technology andmachinery in order to be efficient and to avoid competition. 27. Poor level of service. No consumer sovereignty. Consumers may be charged high prices for Low quality of goods and services. Lack of competition may lead to lowquality and out dated goods and services. 28. Perfect competition is a theoreticalmarket structure. It is primarily used as abenchmark against which other marketstructures are compared. The industry that best reflects perfectcompetition in real life is the agriculturalindustry. Sometimes referred to as"purecompetition". 29. All firms sell an identical product. Infinite buyers and sellers. All firms have a relatively small market share with nopower to control the price of a product. Lowest possible cost. Perfect information. The industry is characterized by freedom of entry andexit. 30. A situation in which a particular market iscontrolled by a small group of firms. An oligopoly is much like a monopoly, inwhich only one company exerts controlover most of a market. In anoligopoly, there are at least two firmscontrolling the market. 31. Few number of firms. Ability to set price. Barriers to entry are high. Long run abnormal profits. Interdependence. Non-Price Competition 32. Monopolistic competition is a type ofimperfect competition such that manyproducers sell products that aredifferentiated from one another as goodsbut not perfect substitutes. Monopolistic competition differs fromperfect competition in that productiondoes not take place at the lowest possiblecost. 33. All firms produce similar but not perfectlysubstitutable products. Large number of firms. All firms have some market power. Independent decision making. Free entry and exit in the long run. 34. Yousef Hani