1. Principles of Economics BIT-116 Introduction to Economics

2. Definition Economics is a social science that studies the choices that individuals, businesses, governments and entire societies make as they cope up with scarcity.

3. Scarcity  Our inability to satisfy our wants is called scarcity.

4. The subjects divides into two parts:  Microeconomics  Macroeconomics

5. Microeconomics  Microeconomics is the study of the choices that individuals and business make, the way these choices interact, and the influences the government exerts on them.

6. Macroeconomics  Macroeconomics is the study of the effects on the national economy and the global economy of the choices that individuals, businesses and governments make.

7. Three Big Microeconomics Questions  What goods and services are produced?  How goods and services are produced?  For whom goods and services produces?

8. Goods and Services  The objects that people value and produce to satisfy wants are called goods and services.

9. What we produce? Services  Real Estate  Retail Trade  Wholesale Trade  Health  Education

10. What we produce? Goods  Construction  Electronic Equipment  Food  Industrial Equipment  Chemicals

11. Factors of Production  Factors of production are grouped into four categories:  Land  Labor  Capital  Entrepreneurship

12. Factors of Production  Land: the gift of nature that we use to produce goods and services are called land.  Labor: the work time and work effort.  Capital: the tools, instruments, machines, buildings and other constructions that businesses now use to produce goods and services are called capital.  Entrepreneurship: the human resources that organizes labor, land, and capital is called entrepreneurship.

13.  Land earns rent.  Labor earns wages.  Capital earn interest.  Entrepreneurship earns profits.

14. Three Big Macroeconomics Questions  What determines the standard of living?  What determines the cost of living?  Why does our economy fluctuate?

15. Inflation and Deflation  Inflation: a rising cost of living is called inflation.  Deflation: a falling cost of living is called deflation.  Business Cycle: We call the periodic but irregular up and down movement in production and jobs the business cycle.  Tradeoff: is an exchange-giving up one thing to get something else.

16. Concept of cost of production  Nominal cost: is the money cost of production. It is also called expenses of production.  Real cost: pains and sacrifices of labor is regarded as real cost.  Economic cost: those payments which must be received by the owners in order to ensure that they will continue to supply them in the process of production.  Implicit cost: self-owned and self-employed resources such as salary of the proprietor.  Explicit cost: are paid out cost. The salaries and wages paid to the employees, prices of raw materials and overheads.

17. Opportunity cost  The highest-valued alternative that we give up to get something is the opportunity cost of the activity chosen.

18. Production Possibility Curve  It is a curve which depicts all possible combinations of two goods which can be produced with given resources and technology in an economy.

19. Law of Demand The law of demand states: Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded.

20. Law of Supply The law of supply states: Other things remaining the same, the higher the price of a good, the greater is the quantity supplied