University of Co-operative and Management,

Thalyin
Business Economics
C EBM 1004

Discussed By
U Zaw Htet Pine
Lecturer
Department of Economics
 What is Economics?
• A social science that studies and
influences human behavior
• Economics is the study of what
constitutes rational human
behavior in the endeavor to fulfill
needs and wants.

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The Foundation of Economics

The “Father”

Adam Smith (1723 - 1790)

– Author of the famous book "An Inquiry into the
Nature and Causes of the Wealth of Nations"
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The Foundation of Economics

- Lionel Robbins
(1898-1984)
• Scarcity
– Scarcity refers to our limited resources and our
unlimited wants and needs.
– For an individual, resources include time, money
and skill.
– For a country, limited resources include natural
resources, capital, labor force and technology.
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 Needs - Wants.
• Human wants are unlimited.
• We live in a world of limited
resources.
• The above leads to scarcity.
• People try to balance needs and
wants.

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 ECONOMICS

MICRO MACRO

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 Microeconomics
• Micro
– Micro comes from Greek word mikros, meaning
“small”
• Microeconomics
– Study of behavior of individual households, firms,
and governments

– Families, businesses, and communities

– Domestic economies
• Choices they make
• Interaction in specific markets
Lieberman & Hall; Introduction to
7
Economics, 2005
 Micro Economics
• Micro Economics studies how the individual parts of the
economy make decisions to allocate limited resources
• Microeconomics studies:
– how individuals use limited resources to meet
unlimited needs
– the consequences of their decisions
– the behavior of individual components like industries,
firms and households.
– how individual prices are set
– what determines the price of land, labor and capital
– inquire into the strengths and weaknesses of the
market mechanism.

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 Macroeconomics
• Macro
– Macro comes from Greek word, makros, meaning
“large”
• Macroeconomics
– Study of the economy as a whole
– Theories of Economics
– Countries and their governments
– Trade between countries
• Focuses on big picture and ignores fine details
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 Macro Economics
• Macroeconomics studies about the functioning of the
economy as a whole
• It examines the economy through wide-lens.
• Macroeconomics studies about
• the total output of a nation
• the way the nation allocates its limited resources of
land, labor and capital
• the ways to maximize production levels
• the techniques to promote trade
• Adam Smith noted that there was an "invisible hand"
turning the wheels of the economy: a market force that
keeps the economy functioning.

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 Positive Economics
• Study of how economy works
• Statements about how the economy works
are positive statements, whether they are true
or not
• Accuracy of positive statements can be tested
by looking at the facts—and just the facts

Lieberman & Hall; Introduction to

11
Economics, 2005
 Normative Economics
• Study of what should be
– Used to make value judgments, identify problems,
and prescribe solutions
– Statements that suggest what we should do about
economic facts, are normative statements
• Based on values
– Normative statements cannot be proved or
disproved by the facts alone

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 Why Study Economics
• To understand the world better
– You’ll begin to understand the cause of
many of the things that affect your life
• To gain self-confidence
– You’ll lose that feeling that mysterious,
inexplicable forces are shaping your life for
you

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 Why Study Economics
• To achieve social change
– You’ll gain tools to understand origins of social
problems and design more effective solutions
• To help prepare for other careers
– You’ll discover that a wide range of careers dealt
with economic issues on many levels
• To become an economist
– You’ll begin to develop a body of knowledge that
could lead you to become an economist in the
future

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 Economics, Scarcity, and Choice
• A good definition of economics
– Study of choice under conditions of scarcity
• Scarcity
– Situation in which the amount of something
available is insufficient to satisfy the desire
for it

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 Scarcity and Economics
• The scarcity of resources—and the choices it forces
us to make—is the source of all of the problems
studied in economics
– Households allocate limited income among goods and
services
– Business firms choices of what to produce and how much
are limited by costs of production
– Government agencies work with limited budgets and must
carefully choose which goals to pursue
• Economists study these decisions to
– Explain how our economic system works
– Forecast the future of our economy
– Suggest ways to make that future even better

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The Factors of Production

Labour Capital
Land Organization

Product

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 Resources – Factors of Production
• Natural resources (Land)– “free gifts of nature”
– Land, minerals, oil, forests, air, and timber
• Capital Resources – “manufactured aids to production”
– Tools, machines, equipment, factories
– Things used in producing goods and services and getting them to
consumers.
• Human Resources (Labor)– “mankind’s physical and mental
talent”
– These are the skills people have that are used to produce goods and
services.
• Entrepreneur – the individual who combines the factors of
production in order to produce a good or service.
– Risk taker, policy maker, and innovator
 ECONOMY

MARKET COMMAND MIXED

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 Market Economies

In a pure market economy

there is no government
involvement in economic
decisions.

Contd….
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The Government lets the market answer the
following three basic economic questions:
1. What ?
Consumers decide what should be produced in a
market economy through the purchases they make.
2.How ?
Production is left entirely up to businesses.
Businesses must be competitive in such an economy
and produce quality products at lower prices than
their competitors.
3.For whom ?
In a market economy, the people who have more
money are able to buy more goods and services.
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 Command Economies

In a command economy the

Government takes economic
decisions.

Contd…. 23
 Command Economies
In a command economy the Government
answers the three basic economic questions.
1. What?
A central planning committee decides what products
are needed.
2. How?
Since the Government owns all means of production
in a command economy, it decides how goods and
services will be produced.
3. For Whom ?
The Government decides who will get what is
produced in a command economy.
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 Mixed Economies

In the Mixed economies the

Government and the Market
work together in decision
making

Contd…
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 The Economic Problem

• Unlimited Wants
• Scarce Resources – Land, Labour, Capital
• Many Uses of Resources
• Choices

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 The Economic Problem
• What goods and services should an economy
produce?
– should the emphasis be on agriculture,
manufacturing or services, should it be on sport
and leisure or housing?
• How should goods and services be produced?
– labour intensive, capital intensive?
• Who should get the goods and services produced?
– Even distribution? More for the rich? For those
who work hard?

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 The firm in its environment: An
overview
• Transnational corporation -a firm which has
the power to control and coordinate operations
in more than one country. Unilever, McDonald
and Apple, Vodafone, coca cola etc.
• Transformation process- the process of
converting inputs into outputs
• Firm -the business organization or enterprise
which transforms inputs into outputs and
makes the latter available for consumption
 The firm’s external environment
Operational Environment
• Operational environment is that those aspects
of a firm’s external environment which tend to
have an influence at an operational level.
Contextual Environment
• Contextual environment is that the broad
macro-environmental context in which firms
exist and operate.
Figure, The firm in its environment
Figure: Two levels of environment
Macro and Microeconomics influences
on the firms
• The macroeconomic environment of the firm
comprises those broad economic aggregates
which are part of the background.
• These include such considerations as
employment/unemployment levels, growth
rates, inflation rates, external trade patterns
and the overall level and pattern of economic
activity.
• Micro-influence are those which operate at the
level of individual business organization or
within the market or industry in which a firm
operates.
• Examples – influences of suppliers, customers
and competitors
Thank you