economics. economics.. economics is the study of the production, distribution and consumption of...
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ECONOMICS.ECONOMICS.
ECONOMICS ISECONOMICS IS
The study
of the
production, distribution
and
consumption of wealth
in the
society.
Another definition on the subject:"Economics
is a social
science
that studies human behaviour
as a relationship between ends and scarce means which have alternative uses"
The purpose of any Economic The purpose of any Economic Activity Activity
is is the production of goods and services to
satisfy consumers’ needs and wants
for
survival
and also
for a
better living standard.
The Basic Economic ProblemThe Basic Economic Problem
The basic economic problem is about scarcity and choice.
Due to the existence of a limited amount of resources to produce an unlimited amount of goods and services all
societies face the problem of having to decide
WHAT TO PRODUCE?
HOW TO PRODUCE?
FOR WHOM TO PRODUCE?
Thus,Thus,
scarcity arises because people have unlimited wants
and
resources are limited.
Because
of scarcity,
various economic decisions must be made to allocate resources efficiently.
Scarcity leads to the concept of Scarcity leads to the concept of Market ValueMarket Value. .
When the supply of a good or service is low, the market value will be high.
WHEREAS
Goods and services that are in large supply will have a lower market value
because supply meets the Consumers’ demand.
Thus,
The concept of Market Value
is based
on individual preferences
and
choices.
People
express
their
preferences
through
their
tradeoff.
Economic SystemsEconomic Systems
An economic system is a network of organizations used by a society to
ANSWER
the basic
QUESTIONS
of
what, how and for whom
to produce.
There are four types of economic systems.
1- The Traditional ECONOMY1- The Traditional ECONOMY
In this system decisions
about
what, how and for whom to produce
are based on
custom and tradition.
Land is owned in common.
Private property is not well defined.
2- Free market economy2- Free market economy::
In this system An increase in demand raises price and
encourages firms to switch additional resources into the production of that good or service.
The amount of products consumed depends on consumers’ income.
The government has a limited role. It just protects the property rights of people and
businesses and the value of currency.
3- Planned or command 3- Planned or command economyeconomy
In this system
resources are owned by the government.
It allocates them, and sets production targets and growth rates.
Income and wealth distribution are decided by the state.
4- Mixed economy:4- Mixed economy:
In this system Some resources are owned by the public
sector (government) and others by the private sector.
The public sector supplies merit goods and intervenes in markets just to correct
market failure.
OPORTUNITY COSTOPORTUNITY COST
It measures the cost of any choice in terms of the next best alternative forgone
Examples of OCExamples of OC
EXAMPLE1
A person is paid £6 per hour to work at a local supermarket.
In case, he chooses to take a day off from work he loses £48 from having sacrificed
eight hours of paid work .
The opportunity cost of going to college is the money he would have earned if he worked instead.
On the one hand, he loses four years of salary while getting his degree.
But on the other hand, he will earn more during his future career, thanks to his degree.
ThusWorking with a degree conpensates
the four years’ lost wages.
EXAMPLE 2
If a gardener decides to grow carrots, his opportunity cost is the alternative crop that
might have been grown instead.
(potatoes, tomatoes….)
SECTORS OF PRODUCTION SECTORS OF PRODUCTION IN THE ECONOMYIN THE ECONOMY
1- Primary sector
It involves the extraction of natural resources
e.g.
agriculture, forestry, fishing,and mining.
2- Secondary sector
This sector involves the production of goods.
It is the transforming of materials produced by the primary sector.
e.g. manufacturing and the construction industry
3- Tertiary sector
It is the sector of the economy which provides services
such as
banking, finance, insurance,
retail, education, travel and tourism.
4- Quaternary sector
It is involved with
information processing
e.g. education, research
and
development