1. Theme I Lesson 1: Introduction to Economics
Economics Course
Theme I Lesson 1: Introduction to Economics
Professor: A. K. Alhowaish
2nd Semester 2018

2. What is Economics? Economics is the study of making choices.
Or, it is the study of how individuals or groups make decisions with limited resources (Scarcity) as to best satisfy their want or needs.

3. Scarcity, Choice, and Marginal Analysis - form the base upon which economics is built
Scarcity means that while we have unlimited wants, our resources are limited…
Due to scarcity, Choices must be made…
Economics deals with how we make such choices…

4. All governments around the world have this problem…
Economic Problems
Land
Labor
Capital ($)
Entrepreneurs
Unlimited
wants
Limited
resources + =
Scarcity 
Choice
All governments around the world have this problem…

5. Government Systems
All governments have limited resources, but they approach it in different ways. There are three different types of economic system which are used by countries to manage their resources as efficiently as possible. These are:
1- Free market economy
2- Commend or planned economy
3- Mixed economy

6. Government Systems

7. Economic Objectives of Governments
Most governments around the world aimed to:
Lower rates of Inflation
Lower levels of Unemployment
Economic Growth
Balance of Payments

8. 1- Low Inflation
Inflation occurs when prices rise. Low inflation is a very important aim. When prices rise rapidly it can be very serious for the whole country. If there is a rapid inflation in a country, problems that country will have are as follows:
Workers’ wages will not buy as many goods as before.
Prices of the goods and services produced in that country will be higher than those in other countries. People may buy foreign goods instead.
Businesses will be unlikely to expand and create more jobs in the future.
Jobs will also be lost and living standards are likely to fall.
Therefore low inflation tends to encourage businesses and firms to expand and it makes it easier for a country to sell its goods and services abroad.

9. 2- Low Levels of Unemployment
When people want to work but cannot find a job, they are unemployed. If a country has a very high level of unemployment, that country will faced the following problems:
Unemployed people do not produce any goods or services. The total level of output in the country will be lower than it could be.
The government will pays unemployment benefit to those without jobs (مثال: حافز السعودية).
A high level of unemployment will cost the government a great deal of money. This cannot be spent on other things such as education and health.
Therefore, low unemployment will help to increase the output of a country and improve workers’ living standards.

10. 3- Economic Growth
An economy is said to grow when the total level of output of goods and services in the country increases. The value of goods and services produced in a country in one year is called Gross Domestic Product (GDP). When a country is experiencing economic growth, the standard of living of the population is likely to increase. However, when a country’s GDP is falling, it has no economic growth, that country will faced the following problems:
As the country’s output is falling, fewer workers are needed and unemployment will occur.
Most people will become poorer.
Business owners will not expand their firms as people will have less money to spend on the products they make.
Economic growth, however, makes a country richer and allows living standards to rise.

11. 4- Balance of Payments long-term balance between imports and exports…
Exports are goods and services sold by one country to people and businesses in another country. These bring money (foreign currency) into a country. Imports are goods bought-in from other countries. These must be purchased with foreign currency so these lead to money flowing out of a country.
Governments will aim to achieve equality or balance between these exports and imports over a period of time. The difference between a country’s exports and imports is called the balance of payments. If a country its imports more than its exports – it has a balance of payments deficit. These are the problems that could result:
The country could “run out” of other countries’ currencies (foreign currencies) and it may have to borrow from abroad.
The price of that country’ currency against other currencies – the exchange rate – will be likely to fall.

12. Economic Cycle
Economic growth is not achieved every year – there are often years when the economy does not grow at all. The pattern of economic cycle is shown below:

13. Economic Cycle
The Economic Cycle (sometimes known as trade cycle or business cycle) has four main stages:
Growth: this is when the country is experiencing economic growth and enjoying higher living standards, the unemployment is generally falling and most businesses will do well at this period.
Boom: This is caused by too much spending. Prices start to rise quickly and there will be shortages of skilled workers. Business costs will be rising and firms will become uncertain about the future.
Recession: Often caused by too little spending. This is a period when national real income (GDP) actually falls. Most businesses will experience falling demand and profits. Workers may lose their jobs.
Slump: A serious and long-drawn-out recession. Unemployment will reach very high levels and prices may fall. Many business costs can often fail to survive this period.
Governments will try to avoid the economy moving towards a recession or a slump, but will also want to reduce the chances of a boom. A boom with rapid inflation and higher business costs can often lead to the conditions that result in a recession.

14. Important Terminology/Concepts in Economics

15. You should know the difference between…
Efficiency:
Means that society is getting the most it can from its scarce resources.
Equity:
Means that the benefits of those resources are distributed fairly among society’s members.
In other words, efficiency refers to the size of the economic pie, and equity refers to how the pie is divided…

16. What are the central issues in economics?
What gets produced?
How is it produced?
Who consumes what is produced?

17. What are the Factors of Productions? (Resources)
Land and natural resources
Labor
Capital
Entrepreneurship

18. What is Natural Resources?
The lands, water, metals, minerals, animals, and other gifts of nature that are available for producing goods and services

19. Note the difference between Renewable Resource and Nonrenewable Resource… Renewable Resources: resources that can be replenished (wood, water, wind, sunlight…). Nonrenewable Resources: resources that cannot be replenished (oil, coal, natural gas…).

20. You should know the difference between…
Resource Market:
A market where people supply their resources - land, labor, capital and entrepreneurship.
Product Market:
The market where people buy goods and services

21. What are the two ways of looking at economics?
1- Macroeconomics: examines the economy as a whole. It includes measures of total output, total employment, total income, aggregate expenditures etc…
2- Microeconomics: It is concerned with the individual industry, firm or household and the price of specific products and resources.

22. The Concept of Sustainable Development

23. Sustainability & Sustainable Development

24. Sustainability & Sustainable Development

25. Sustainability & Sustainable Development

26. Sustainability & Sustainable Development

27. Sustainability & Sustainable Development

28. Sustainability & Sustainable Development

29. Sustainability & Sustainable Development

30. Sustainability & Sustainable Development

31. Course Web Site

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37. Course Grading System

38. Next Lecture The Ten Principles of Economics…