SUMMARIZED NOTES
1|Page
, 1.1 Defining economics Economics is a social science that studies how society allocates
its scarce resources among competing alternatives. The subject matter of economics is human
beings, and the approach used in economics has much in common with that of the natural
sciences.
1.2 Microeconomics and Macroeconomics Economics is divided into two parts:
microeconomics and macroeconomics. Microeconomics deals with the economic behavior of
individual units such as consumers, firms, and households. Macroeconomics, on the other
hand, deals with the behavior of economic aggregates such as national income and the level
of employment.
1.3 Positive and Normative economics Positive economics is based on established facts
and seeks to explain real economic events. Normative economics, on the other hand, deals
with opinions or value judgments about what economic events should be like. Normative
economics is prescriptive, while positive economics is descriptive.
1.4 The Basic Economic Problem The economic problem is a problem of scarcity. Human
material wants are virtually unlimited, while economic resources are limited in supply. The
economic problem can be described in terms of scarce resources in relation to unlimited
wants.
1.4.1 Scarce Resources Economic resources may be classified as property resources -
land and capital - or as human resources - labor and entrepreneurial ability. These resources
are limited in supply, and yet society desires more of them than is available.
1.4.2 Choice and Opportunity Cost Because resources are scarce, choices have to be
made about how they are allocated. The opportunity cost of a choice is the value of the best
alternative forgone. Thus, when making choices, individuals, firms, and societies have to
consider the opportunity cost of each alternative.
Table 1.1 shows the different types of resources used in production and their
corresponding rewards. Land refers to all gifts of nature and earns rent as its reward. Labour
refers to the physical and mental effort of people and earns wages as its reward. Capital
refers to all goods used to produce other goods and earns interest as its reward. Enterprise
refers to all managers and organizers and earns profit as its reward.
Contents
Table 1.1 shows the different types of resources................................................................................... 2
2|Page
1|Page
, 1.1 Defining economics Economics is a social science that studies how society allocates
its scarce resources among competing alternatives. The subject matter of economics is human
beings, and the approach used in economics has much in common with that of the natural
sciences.
1.2 Microeconomics and Macroeconomics Economics is divided into two parts:
microeconomics and macroeconomics. Microeconomics deals with the economic behavior of
individual units such as consumers, firms, and households. Macroeconomics, on the other
hand, deals with the behavior of economic aggregates such as national income and the level
of employment.
1.3 Positive and Normative economics Positive economics is based on established facts
and seeks to explain real economic events. Normative economics, on the other hand, deals
with opinions or value judgments about what economic events should be like. Normative
economics is prescriptive, while positive economics is descriptive.
1.4 The Basic Economic Problem The economic problem is a problem of scarcity. Human
material wants are virtually unlimited, while economic resources are limited in supply. The
economic problem can be described in terms of scarce resources in relation to unlimited
wants.
1.4.1 Scarce Resources Economic resources may be classified as property resources -
land and capital - or as human resources - labor and entrepreneurial ability. These resources
are limited in supply, and yet society desires more of them than is available.
1.4.2 Choice and Opportunity Cost Because resources are scarce, choices have to be
made about how they are allocated. The opportunity cost of a choice is the value of the best
alternative forgone. Thus, when making choices, individuals, firms, and societies have to
consider the opportunity cost of each alternative.
Table 1.1 shows the different types of resources used in production and their
corresponding rewards. Land refers to all gifts of nature and earns rent as its reward. Labour
refers to the physical and mental effort of people and earns wages as its reward. Capital
refers to all goods used to produce other goods and earns interest as its reward. Enterprise
refers to all managers and organizers and earns profit as its reward.
Contents
Table 1.1 shows the different types of resources................................................................................... 2
2|Page
