Unit 1: Introduction to Economics
Social sciences: Academic studies of human societies and human interaction.
Economics: the study of choices leading to the best possible use of scarce resources to best
satisfy unlimited human needs and wants.
Microeconomics: examines the behavior of individual decision-making units in the economy
and how they make economic decisions
Macroeconomics: examines the aggregate economy activity and how the economy works as a
whole.
9 KEY CONCEPTS OF ECONOMICS
Scarcity: the situation where factors of production are limited whereas human needs and wants
are unlimited.
Choice: choices must be made about what will be produced and what is sacrificed due to
scarce sources.
Efficiency: making the best possible use of scarce resources to avoid resource waste.
❖ Allocative efficiency: refers to using the scarce resources to produce the combination
of GS that is optimal for society and minimizing resource waste.
Equity: the idea of fairness (everyone has the same opportunities)
❖ Equality: the idea of being equal, everyone receives the same amount
Economic well-being: A multidimensional concept relating to the level of prosperity and quality
of living standards in a country.
Sustainability: production of goods and services without depleting natural resources, so future
generations can continue to produce and satisfy their needs and wants.
Change: The world is constantly changing in every possible aspect: institutions, the state of
technology, society and its economy.
Interdependence: An economy is composed of many interdependent economic agents that
interact with each other to achieve their economic goals.
Intervention: refers to governments interfering with free markets through policies and
regulations
SCARCITY AND CHOICES
● Resources are scarce so they need to be allocated efficiently and used effectively
● Resource scarcity forces the society to make a choice between available alternatives
SCARCITY AND SUSTAINABILITY
● Resources are scarce so they need to be allocated efficiently and used effectively
● The problem of sustainability arises because resources are scarce.
● Sustainability depends on sustainable resources use, preserving the environment
overtime
● Sustainability refers to maintaining the ability of the environment and the economy to
continue to produce and satisfy needs and wants into the future
1
, THE FOUR FACTORS OF PRODUCTION
● Land: all natural resources (e.g. minerals, ocean)
● Labour: physical and mental effort humans contribute to produces GS
● Capital: all man-made FOP used to produce GS (factories, tools, buildings)
○ PHYSICAL CAPITAL: A man-made factor of production used to produce goods
and services (eg. machinery)
○ HUMAN CAPITAL: The skills, abilities, and knowledge acquired by people to
make them more productive (eg. education, health)
○ NATURAL CAPITAL: All natural resources (eg. air, biodiversity, soil quality)
● Entrepreneurship: Human skill that involves the ability to innovate, take business risks,
and seek new opportunities
OPPORTUNITY COSTS
● The value of the best next alternative that must be sacrificed to obtain something else
● Results from the scarcity that forces choice to be made
● Scarce resources → choices made → opportunity cost
FREE vs ECONOMIC GOODS
● Free goods: not scarce, no opp cost (oxygen in the open, unpolluted countryside)
● Economic goods: scarce, have opp cost (oxygen in a closed room with lots of ppl)
3 BASIC ECONOMICS QUESTIONS
1. What to produce — about resources allocation
2. How to produce— about resources allocation
3. For whom to produce —- about income and output distribution
GOVERNMENT INTERVENTION
● Changes the allocation of resources and the distribution of income+output from what
free markets would have achieved working on their own
2
Social sciences: Academic studies of human societies and human interaction.
Economics: the study of choices leading to the best possible use of scarce resources to best
satisfy unlimited human needs and wants.
Microeconomics: examines the behavior of individual decision-making units in the economy
and how they make economic decisions
Macroeconomics: examines the aggregate economy activity and how the economy works as a
whole.
9 KEY CONCEPTS OF ECONOMICS
Scarcity: the situation where factors of production are limited whereas human needs and wants
are unlimited.
Choice: choices must be made about what will be produced and what is sacrificed due to
scarce sources.
Efficiency: making the best possible use of scarce resources to avoid resource waste.
❖ Allocative efficiency: refers to using the scarce resources to produce the combination
of GS that is optimal for society and minimizing resource waste.
Equity: the idea of fairness (everyone has the same opportunities)
❖ Equality: the idea of being equal, everyone receives the same amount
Economic well-being: A multidimensional concept relating to the level of prosperity and quality
of living standards in a country.
Sustainability: production of goods and services without depleting natural resources, so future
generations can continue to produce and satisfy their needs and wants.
Change: The world is constantly changing in every possible aspect: institutions, the state of
technology, society and its economy.
Interdependence: An economy is composed of many interdependent economic agents that
interact with each other to achieve their economic goals.
Intervention: refers to governments interfering with free markets through policies and
regulations
SCARCITY AND CHOICES
● Resources are scarce so they need to be allocated efficiently and used effectively
● Resource scarcity forces the society to make a choice between available alternatives
SCARCITY AND SUSTAINABILITY
● Resources are scarce so they need to be allocated efficiently and used effectively
● The problem of sustainability arises because resources are scarce.
● Sustainability depends on sustainable resources use, preserving the environment
overtime
● Sustainability refers to maintaining the ability of the environment and the economy to
continue to produce and satisfy needs and wants into the future
1
, THE FOUR FACTORS OF PRODUCTION
● Land: all natural resources (e.g. minerals, ocean)
● Labour: physical and mental effort humans contribute to produces GS
● Capital: all man-made FOP used to produce GS (factories, tools, buildings)
○ PHYSICAL CAPITAL: A man-made factor of production used to produce goods
and services (eg. machinery)
○ HUMAN CAPITAL: The skills, abilities, and knowledge acquired by people to
make them more productive (eg. education, health)
○ NATURAL CAPITAL: All natural resources (eg. air, biodiversity, soil quality)
● Entrepreneurship: Human skill that involves the ability to innovate, take business risks,
and seek new opportunities
OPPORTUNITY COSTS
● The value of the best next alternative that must be sacrificed to obtain something else
● Results from the scarcity that forces choice to be made
● Scarce resources → choices made → opportunity cost
FREE vs ECONOMIC GOODS
● Free goods: not scarce, no opp cost (oxygen in the open, unpolluted countryside)
● Economic goods: scarce, have opp cost (oxygen in a closed room with lots of ppl)
3 BASIC ECONOMICS QUESTIONS
1. What to produce — about resources allocation
2. How to produce— about resources allocation
3. For whom to produce —- about income and output distribution
GOVERNMENT INTERVENTION
● Changes the allocation of resources and the distribution of income+output from what
free markets would have achieved working on their own
2
