1. Introduction to Economics

2. Topics for Discussion Scarcity and Economics.
Macroeconomics and Microeconomics.
Resources.
Production Possibility Frontier.
Basics of Graphs.

3. Issues in our life:
Why the prices of the apartments in the Metros are increasing?
Why do professional players make so much money?
Will higher taxes on cigarettes reduce the amount people smoke?
Why do domestic producers like tariffs (taxes) on imported cars?
Why prices of petroleum products are increasing?
Why Inflation rate is increasing?

4. Economy. . .
The word economy comes from a Greek word for “one who manages a household.”
The study of how society manages its scarce resources.

5. Economics Wants, desires: unlimited Resources: scarce Economic choice
How people use scarce resources to satisfy unlimited wants 5

6. Macroeconomics And Microeconomics
Macroeconomics deals with the aggregate, or total economy.
It looks at economic problems as they influence the whole of society, including the topics of inflation, unemployment, business cycles and economic growth.

7. Macroeconomics and Microeconomics
Microeconomics deals with the smaller units within the economy.
It attempts to understand the decision making behavior of firms and households and their interaction in markets for particular goods or services.
Microeconomics looks at the trees while macroeconomics looks at the forest.

8. Resources Inputs; factors of production
Used to produce goods and services
Goods and services are scarce because resources are scarce
Labor
Capital
Natural resources
Entrepreneurial ability 8

9. Resources Labor - human effort Capital - human creations Time
Physical effort
Mental effort
Time
Payment: Wage
Capital - human creations
Physical capital
Payment: Interest

10. Resources Natural resources - Gifts of nature Entrepreneurial ability
Renewable
Exhaustible
Payment: Rent
Entrepreneurial ability
Talent, idea
Risk of operation
Payment: Profit

11. Goods and Services Good: see, feel, touch Service: intangible
Scarce good/service
The amount people desire exceeds the amount available at a zero price
Choice
Give up some goods and services

12. Efficiency and the PPF Production Possibilities Frontier (PPF)
Assumptions
Output: consumer and capital goods
Production: 1 year
Fixed resources (quantity, quality)
Fixed technology
Resources - scarce for the economy
Economy’s production options

13. Efficiency and the PPF PPF Inefficient combinations
Possible combinations of
Consumer and Capital goods that
Can be produced using
All resources efficiently
Inefficient combinations
Unattainable combinations

14. The Economy’s Production Possibilities FrontierA 10 20 30 34 43 48 50
Consumer goods
PPF (AF): Economy uses all resources and technology efficiently
Inefficient: inside PPF
Unattainable: outside PPF B C U
Unattainable D I
Inefficient E F 10 50 40 30 20
Capital goods

15. The Shape of the PPF Movement down along PPF
Give up some consumer goods to get more capital goods

16. What Can Shift the PPF? Economic growth
Expansion in the economy’s PPF
Changes in resource availability
Outward shift of PPF – increase in:
Size, health of labor force
Skills of labor force
Availability of other resources
Increases in capital stock
More output; outward shift of PPF

17. What Can Shift the PPF? Technological change
Employs resources more efficiently
Outward shift of PPF
Improvements in the rules of the game
Formal and informal institutions
Economic growth

18. Shifts of the economy’s PPF
(a) Increase in available resources
(b) Decrease in available resources
Consumer goods
Consumer goods A’ A A A’
Capital goods F F’
Capital goods F’ F
Outward shift of PPF – increase in available resources; better technology
- enhanced production of both capital and consumer goods
(b) Inward shift of PPF – decrease in available resources
- decreased production of both capital and consumer goods

19. Shifts of the economy’s PPF
(c) Change in resources that
benefits consumer goods
(d) Change in resources,
technology, or rules that
benefits capital goods
Consumer goods
Consumer goods A’ A A
Capital goods F
Capital goods F F’

20. Understanding Graphs in Economics
Dr. Alok Kumar Pandey

21. Understanding Graphs Origin Horizontal axis Vertical axis Graph
Functional relation
Dependent variable
Independent variable

22. Basics of a graph Point a: - 5 units X - 15 units Y Point b:10 5 20 y
Vertical axis
Point b:
- 10 units X
- 5 units Y a b
Origin 20 15 10 5 x
Horizontal axis

23. U.S. Unemployment rate since 1900

24. Drawing Graphs Dependent variable Types of relations between variables
Depends on the independent variable
Types of relations between variables
Positive; direct
Negative; inverse
Independent; unrelated

25. Schedule and Graph relating distance traveled to hours driven
per day
Distance traveled per day (KM) a b c d e 1 2 3 4 5 50
100
150
200
250

26. Schedule and Graph relating distance traveled to hours driven
150
100 50
200
Distance traveled per day (KM)
250 a b c d e 4 3 2 1
Hours driven per day 5
Points a through e depict different combinations of hours
driven per day and the corresponding distances traveled.
Connecting these points graphs a line.

27. Slopes of Straight Lines
Change in vertical variable
For a given increase in horizontal variable
Slope = Change in the vertical distance/ Increase in the horizontal distance
Slope of a straight line
The same value along the line

28. Alternative slopes for straight lines
(a) Positive relation
(b) Negative relation 10 15 20 y 10 3 20 y
Slope = 5/10 = 0.5 5
Slope = - 7 /10 = - 0.7 10 -7 10 x 20 10 x 20 10

29. Alternative slopes for straight lines
(c) No relation: zero slope
(d) No relation: infinite slope 10 15 20 y 10 20 y
Slope = 10 /0 = ∞ 10
Slope = 0/10 = 0 10 x 20 10 x 10