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CHAPTER 1: INTRODUCTION TO ECONOMICS

DEFINITION / CONCEPT

ECONOMICS: SOCIAL SCIENCE STUDY OF HUMAN BEHAVIOR IN MAKING
DECISION TO USE LIMITED RESOURCES TO FULFILL UNLIMITED WANTS.

MICROECONOMICS: STUDIES INDIVIDUAL ECONOMIC UNITS IN DETAIL SUCHA
AS A HOUSEHOLD, FIRM AND GOVERNMENT.

MACROECONOMICS: STUDIES THE AGGREGATE BEHAVIOUR OF THE ENTIRE

ECONOMY.

PRODUCTION POSSIBILITIES CURVE (PPC): ALTERNATIVE COMBINATIONS OF

TWO GOODS WHICH CAN BE PRODUCED WITH THE EXISTING RESOURCES AND
THE CURRENT LEVEL OF TECHNOLOGY

BASIC ECONOMIC CONCEPTS

• SCARCITY: NOT ENOUGH OR INSUFFICIENT

• CHOICE: MAKE CHOICE BECAUSE OF LIMITED RESOURCES BY UTILIZED
THE RESOURCES WISELY AND DECISION MADE BASED ON URGENCY AND

INTEREST.
• OPPORTUNITY COST: SECOND BEST ALTERNATIVE THAT HAS TO BE
FORGONE.

BASIC ECONOMIC PROBLEMS

• WHAT TO PRODUCE?

• HOW TO PRODUCE?
• FOR WHOM TO PRODUCE?

SHAPES OF PPC

• CONCAVE (INCREASING OPPORTUNITY COST)

• CONVEX (DECREASING OPPORTUNITY COST)
• LINEAR @ STRAIGHT LINE (CONSTANT OPPORTUNITY COST)

FACTORS INFLUENCING PPC (SHIFT OUTWARDS/INWARDS)

• INCREASED/DECREASED INPUTS AND RESOURCES

• IMPROVED/INFERIOR LEVEL OF TECHNOLOGY