WELCOME TO

FHBM1014 PRINCIPLES OF ECONOMICS

(Topic 1 – Introduction to Economics)

1

Irvin B. Tucker (2011)

Economics For Today’s World

7th edition

Publisher: Thomson South Western

Main Text

2

3

• Mid Term Test (Week 7) 15%• Group Report (Week 9) 15%• Group Presentation (Week 11) 10%• Total Coursework 40%• Final Examination 60%• TOTAL 100%

Method of Assessment

4

• Lecture Notes• Tutorial Questions• Assignment Question• Unit Plan

• Obtain from WBLE http://wble.utar.edu.my

Course Materials

5

Topic 1 – Introduction to Economics

Topic 2 – Understand The Two Simple Economics Model

Topic 3 – Market Demand and Supply (Part 1)

Topic 4 – Market Demand and Supply (Part 2)

Topic 5 – Price Elasticity of Demand and Supply

Mid Term Test

Overview

6

Topic 6 – Concepts of National Income: GDP and GNP

Topic 7 – Macroeconomic Problems (Part 1)

Topic 8 – Role of Government

Topic 9 – Introduction To Money and Banking

Topic 10 – International Trade and Globalization

Final Examination

Overview

7

After Completion of this chapter, students should be able to :

1. Understand the definition of economics and the two main branches of economics.

2. Four categories of resources.

3. Basic economic problems.

4. The study of scarcity, choice and opportunity costs.

5. Positive and normative analysis.

Learning Objectives

Learning Objectives

(1)Understand the definition of economics and the two

main branches of economics

8

a) The term economics comes from a Greek word “oikonomos” (household management) from “oikos” (house) + “nomos” (custom or law), hence "rules for running the house (hold).

b) Def: Economics is the science that studies how individuals and groups make decisions with scarce (limited) resources as to best satisfy their wants, needs, and desires.

9

Introduction to Economics

c) Should economics be considered a science? Why or why not?

Yes. Economics is the social science studies. Economics uses models and theories to make predictions and then tests those predictions using empirical analysis.

d) We can break down the study of economics

into two broad categories - microeconomics and macroeconomics.

10

Introduction to Economics

a) Micro comes from Greek word mikros, meaning “small”.

b) It attempts to understand the decision making behavior of firms and households and their interaction in markets for particular goods or services.

c) Focuses on individual parts of an economy, rather than the whole.

11

Two Branches of Economics

d) Macro comes from Greek word, makros, meaning “large”

e) Macroeconomics deals with the aggregate, or total economy.

f) It looks at economic problems as theyinfluence the whole of society, including the topics of inflation, unemployment, business cycles, and economic growth.

12

Two Branches of Economics

Learning Objectives

(2)Four Categories of

Resources

13

a) Def: Basic categories of inputs used in the production of goods and services.

b) Also known as factors of production.

c) Four types of resources: - land, - labour, - capital, - entrepreneurship.

14

What Are Resources

a) Def: Any natural resource used to produce goods and services.

b) This includes not just land, but anything that comes from the land - water, oil, copper, natural gas, coal, and forests.

c) The income that resource owners earn in return for land resources is called rent.

15

Factors of Production - Land

a) Def: Labor is the effort (physical and mental) that people contribute to the production of goods and services.

b) Exp: the work done by the waiter who brings your food at a local restaurant as well as the engineer who designed the bus that transports you to campus.

c) The income earned by labor resources is called wages.

16

Factors of Production - Labour

a) Def: All non-natural (manufactured) resources that are used in the creation and production of other products.

b) Exp: A doctor may use a stethoscope and an examination room to provide medical services. Your teacher may use textbooks, desks, and a whiteboard to produce education services.

c) The income earned by owners of capital resources is interest.

17

Factors of Production - Capital

a) Def: The creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products.

b) The most successful entrepreneurs are innovators who find new ways produce goods and services or who develop new goods and services to bring to market.

c) The payment to entrepreneurship is profit.18

Factors of Production - Entrepreneurship

Learning Objectives

(3)Basic Economic Problems

19

20

• 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, land intensive, capital intensive? Efficiency?

• Who should get the goods and services produced? – even distribution? more for the rich? for those who work hard?

The Economic Problem

Learning Objectives

(4)The study of scarcity,

choice and opportunity costs

21

a) The problem for society is a scarcity of resources.

b) We may want more friendship, love, knowledge, and so on.

c) We also may have many goals—perhaps an A in this class, a college education, and a great job.

d) Unfortunately, people are not able to fulfill all their wants and desires, material and nonmaterial.

e) As long as human wants exceed available resources, scarcity will exist.

22

Scarcity and Choice

23

American Malaysian

Human needs take the form of wants when culture and personality are applied.

They are shaped by society.

Needs & Wants

Needs are the basic necessities that a person must have in order to survive. e.g. food, water, warmth, shelter and

clothing

a) Scarcity means no society has enough resources to produce all the goods and services necessary to satisfy all human wants.

b) Scarcity force each of us to make choices.c) This means each decision has a sacrifice in

terms of an alternative not chosen (opportunity cost).

24

Scarcity and Choice

SCARCITY CHOICE OPPORTUNITY COST

a) The cost expressed in terms of the next best alternative sacrificed.

b) Can opportunity cost be something other than money? Yes, the most desired good or service or use of time that you are presently giving up is an opportunity cost.

25

Choice and Opportunity Cost

• A student who must decide how to allocate her main resource – time.

• Spend all the time studying economics• Spend all the time studying maths• Or divide time between both• For every hour spent on one subject, she

gives up an hour for the other.• Every hour spent studying, hour gone on

leisure or work, etc.

26

Opportunity Cost - Example

Learning Objectives

(5)Positive And Normative

Analysis

27

a) Statements about how the economy works are positive statements, whether they are true or not.

b) Accuracy of positive statements can be tested by looking at the facts—and just the facts

28

Positive Statements

a) Used to make value judgments, identify problems, and prescribe solutions.

b) Statements that suggest what we should do about economic facts, are normative statements.

c) Normative statements cannot be proved or disproved by the facts alone.

29

Normative Statements

• Positive analysis : Answers the question “What is?” or “What will be?”• Normative analysis : Answers the question “what should do”

Positive Questions Normative Questions

• If the firm decreases the wage, how many workers will lose their jobs?

• Should the firm decrease the wage?

• How does a college education affect a person’s productivity and earnings?

• Should the government subsidize a college education?

• How do consumers respond to a cut in income taxes?

• Should the government cut taxes to stimulate the economy?

Positive Analysis And Normative Analysis

30

31

• Classify each of the following statements as positive or normative.– An increase in the minimum wage will increase the rate

of teenage unemployment– The government should raise the tax on tobacco to

reduce the quantity of cigarettes sold– An increase in the rate of growth of the money supply

will lead to a rise in the price level– An increase in the interest rate will cause a decline in

investment– The government should provide healthcare to anyone

who does not have health insurance

Problem Application

32

• Chapter 1• Tucker, I.B (2011). Economics for today’s

world. (7th ed.). Mason, OH: Thomson South Western.

• Lecture Notes

Reference