2. 2
Economics is the social science that aims to
describe the factors which determine the
production, distribution and consumption of
goods and services
3. What is economics?
3
Adam Smith is considered to be the father of
economics
Is a social science
Studies human behavior
Teaches how to take rational decisions
Society is the laboratory concerned with any
test related to economics
Can be basically divided into two branches as
micro and macro economics
4. Micro-economics
4
Is a study of individual parts
Study how individual parts known as micro
economic agents takes decisions in the dynamic
environment
Look at one economic agent at once and come
up with informational phrases or economic
statements
Ex; market demand for SOAP
6. Macro-economics
Rashain Perera CIMA Advanced dip.BA
UOR(mgt)6
Studies the economy in aggregate
Look at the entire economy as a whole and
come up with economic statements.
Ex; inflation rate
10. Economic statements
10
There are two types of economic statements
They are positive and normative economic
statements
11. Positive economic statements
11
Deals with facts
Can be proved
Can be measured
Realistic
Objective
Quantitative
Ex; disposable income is the income that is
arrived after deducting taxes from gross
earnings
12. Normative economic statements
12
Can not be measured
Is only a judgment
Subjective
Qualitative
Words such as aught to and should to are used
Ex; minimum wage should be increased in an
effort to increase standards of living
16. What is scarcity?
16
Amal wants to buy an iphone ..hmm a macbook.
.and…an.ipod…ipad..and ……….
What?
But has Amal got enough money to buy them
all?
No
17. Scarcity……….
17
The gap between unlimited wants and limited
resources could be simply known as scarcity
In the previous example Amal had lot of wants
but he didn’t have enough money to buy them
all
So he should make a choice
This is simply called economizing
18. What is “Economizing”?
18
Economizing simply means avoiding wastes or
reducing expenditures.
Economics teaches how to economize
To economize, we have to take rational
decisions
19. Rational decisions? What is that?
19
A method for systematically selecting among
possible choices that is based on reasons and
facts.
In a rational decision making process, a
business manager will often employ a series of
analytical steps to review relevant facts,
observations and possible outcomes before
choosing a particular course of action.
20. So u say to make a choice?
20
We cant have all what we want.
We have to make choice among alternative
options available
This is simply known as “choice”.
21. So what about other options?
21
As mentioned before we cant have all what we
want.
Its due to scarcity.
So we have to make a choice
Choice involves an opportunity cost
22. Opportunity cost?
22
The cost of the next best alternative forgone
when making a choice can be simply known as
opportunity cost
Opportunity cost can be measured by dividing
forgone production by increased production.
25. Scarcity, alternative options, choice
and opportunity cost??? All inter-
related??
25
Yes it is
Scarcity -> alternative options choice ->
opportunity cost
28. What are the solutions for needs and
wants?
28
Goods and services
In economics the term goods refers to both goods
and services
Goods are the final outcome of production
process
Hence studying on production process is vital
29. Production process
29
Input -> process -> output
What are economic inputs?
Economic inputs are:
Factors of production
Factors of productivity
30. Factors of production
30
Property resources
Land
Labour
Human resources
Capital
Entrepreneurship
Time
Knowledge
Skills
Experiences
31. Factors of productivity
31
Human capital
Technological developments
Specialization and division of labour
Management and administration
32. Resources? Economic input?
32
Yes
Factors of production and productivity
together stands for “RESOURCES”
Resources are inputs that can be used up in
production
Anything that can be used in production is a
resource.
33. Classification of resources
33
Economic resources Vs non economic resources
Renewable resources Vs non renewable
resources
Finite and infinite resources
34. What are the economic outputs?
34
Goods and services
Anything that satisfies a want for a need can
be known as a good or a service
What is a need?
What is a want?
36. production = productivity????
36
No!!!!!
Productivity is the relationship between output
and the input
Production is the conversion of input into
outputs.
37. What is economic efficiency?
37
“Doing the thing right”
Can be divided in to 2
Allocative efficiency; Allocative efficiency
occurs when MB=MC. In other words if resources
are allocated optimally is said that Allocative
efficiency exists.
Productive efficiency; productive efficiency can
be defined as producing goods and services for
the lower cost