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Intrdoduction

introduction to economic

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3 views

Intrdoduction

introduction to economic

Uploaded by

moustafa
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Introduction to Economics

What is Economics?
Economics is the social science that studies the choices that
individuals, businesses, governments, and entire societies make
as they cope with scarcity and the incentives that influence and
reconcile those choices.

•Scarcity indicates that human needs exceed resources. In other


words, economic resources are insufficient to satisfy all human
needs and wants.
The Economic Problem is the problem of how to satisfy
unlimited needs and wants using limited economic resources.

Should be used to
Satisfy
Limited Unlimited
Economic Human
Resources Needs/Wants
2.Microeconomics and Macroeconomics
Three Economic Questions
How do choices end up determining:
- What to produce?
- How to produce?
- For whom goods and services get produced?
1. What, How, and For Whom?
Goods and services are the objects that people value
and produce to satisfy human wants.
A) What to produce?
Means “what goods and services to be produced and in
what quantities?”. Because of scarcity, no society can
produce everything. Therefore, every society has to make
decisions on what goods and services to be produced in
order to satisfy needs and wants.
Examples:

Agriculture accounts for less than 1 percent of total U.S.


production, manufactured goods for 22 percent, and
services for 77 percent.

In China, agriculture accounts for 11 percent of total


production, manufactured goods for 49 percent, and
services for 40 percent.
B) How to produce?

• Goods and services are produced by using productive resources


that economists call factors of production.

• What production technique (mix of factors of production) will


be used in producing those goods and services?”.

• The choice of the production technique is simply a choice of the


mix of factors of production to be used in the production
process.
• Factors of production are: land, labor, capital, and entrepreneur.
• Land: is the “gifts of nature” that we use to produce goods
and services.

• Labor: is the work time and work effort that people devote to
producing goods and services. The quality of labor depends on
human capital, which is the knowledge and skill that people
obtain from education, on-the-job training, and work
experience.

• Capital: the tools, instruments, machines, buildings, and other


constructions that businesses use to produce goods and
services.

• Entrepreneurship: is the human resource that organizes land,


labor, and capital.
Factor of Production Income
Land Rent
Labor Wages & Salaries
Capital Interest rate
Etrepreneur Profits
C) For whom to produce?
This question is about “who gets the goods and services
produced?”. So, it is about the distribution of incomes in
the society. Thus, it could be restated as “how are incomes
distributed in the economy?”.

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