Chapter 1 : INTRODUCTION TO ECONOMICS Prepared by : Dr.Hassan Sweillam

WHAT IS ECONOMICS??? Economics – is the study of how people and societies use the scarce resources efficiently in order to produce valuable goods and services to satisfy the needs and wants of people and societies. Also economics studies how people make choices under conditions of scarcity, how people think rationally according to cost and benefits approach in order to take wise decision; only if, its benefits(returns/pleasure) exceed its cost (expenses/effort).

WHAT IS ECONOMICS??? What does THAT mean?!!??!! Accordingly, Economics is a social science/discipline related to many other fields of study; it is related to policies, psychology, sociology…etc., as it studies the behavior of governments at the macro level.

WHY DO WE STUDY ECONOMICS ? 1-Economics helps in understanding the daily life problems; as problems of jobs, prices, salaries, and taxes. 2- Economics helps in understanding also the role of government and people in solving such problems.

THAT IS ECONOMICS (scarcity – choice – economic problem) People are always looking for better standard of living. They want clean air and environment, good schools and universities, confortable homes…etc. There is never enough time, money, resources, or have everything they would like to have. Our inability to satisfy all our needs and wants is called ‘the problem of scarcity’ or ‘the economic problem’.

Accordingly, the economic problem can be stated as follows: Unlimited needs and wants Limited or Scarce Resources

What are resources? Definition: The things used to make other goods

BUT, there’s a Fundamental Problem: SCARCITY: unlimited wants and needs but limited resources

Concept of Scarcity Human wants are unlimited, but human capacity to satisfy such wants is limited. Resources Demand for Resources

Choices, Choices Because ALL resources, goods, and services are limited – WE MUST MAKE CHOICES!!!!

Why Choices? We make choices about how we spend our money, time, and energy so we can fulfill our NEEDS and WANTS. What are NEEDS and WANTS?

Wants and Needs, Needs and Wants NEEDS – “stuff” we must have to survive, generally: food, shelter, clothing WANTS – “stuff” we would really like to have (Fancy food, houses, clothing, big screen TVs, jewelry, mobiles , . . . Also known as LUXURIES

VS.

TRADE-OFFS You can’t have it all (SCARCITY – remember?) so you have to choose how to spend your money, time, and energy. TRADE-OFF definition : decisions involve picking one thing over all the other possibilities. ‘Substitution is the law of life’ or we cannot satisfy all our wants at the same time, as making decisions requires trading off one goal against another.

TRADE-OFFS , cont. Tradeoff is one of the core principle in economic. Scarcity principle makes tradeoffs necessary. Since not only needs and wants cannot be satisfied by the available limited resources, therefore people, business, and/or government should classify their needs and wants by order ‘priority’ and start choosing according to them.

TRADE-OFFS , cont. Bill Gates, as one of the richest men on earth, although he has enough money to buy anything that he could possibly need/want/use, like all people in this world Gates has only 24 hours each day and a limited amount of energy! He is facing also the economic problem in a way that any activity he pursues uses up time and energy that he could otherwise spend on other things. So he has to give up something to get another one!

Trade-Offs, cont. IN YOUR JOURNAL: What COULD you have done instead of come to university today? These are all Trade-Offs! Thanks for being here!

The Value of the Next Best Choice A special kind of Trade-Off is an OPPORTUNITY COST = The Value of the Next Best Choice The economic sense is based on the rational comparison between the satisfaction of choosing (X) compared to that from choosing (Y), or what is called cost-benefit analysis. This type of analysis is one reflecting the concept of ‘opportunity cost’. (Ex: Sleeping is the opportunity cost of studying for a test)

Q: What is the opportunity cost of buying pizza? Opportunity Costs This is really IMPORTANT – when you choose to do ONE thing, its value (how much it is worth) is measured by the value of the NEXT BEST CHOICE. This can be in time, energy, or even MONEY Then I can’t afford the movies… If I buy a pizza… Q: What is the opportunity cost of buying pizza?

Review questions True or False Questions 1- Economics is the study of how people and societies use the unlimited resources efficiently . Answer: False 2- The economic problem can be stated as limited needs and wants and unlimited resources.

Review questions True or False Questions 3- Wants are “stuff” we must have to survive, generally: food, shelter, clothing. Answer: False 4- Opportunity cost is the Value of the Next Best Choice. Answer: True

Review questions Multiple Choice Questions 1- _________ are the things used to make other goods. A- Wants B- Needs C- Resources D- Scarcity Answer: C

Review questions 2- ____________ unlimited wants and needs but limited resources. A- Wants B- Needs C- Resources D- Scarcity Answer: D

Review questions 3- ________ are “stuff” we must have to survive, generally: food, shelter, clothing . A- Wants B- Needs C- Tradeoff D- Choice Answer: B

Review questions Brief explain Questions 1- Briefly explain the needs and wants? 2- Briefly explain the concept of scarcity ? 3- Briefly explain the concept of Tradeoffs ? Brief explain Questions