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WELCOME TO

FHBM1014
PRINCIPLES OF
ECONOMICS
MAIN TEXT
Irvin B. Tucker (2011)
Economics For Todays
World 7th edition
Publisher: Thomson
South Western
Method of Assessment
Mid Term Test (Week 8) 15%
Group Report (Week 10) 15%
Group Presentation (Week 11) 10%
Total Coursework 40%
Final Examination 60%
TOTAL 100%
COURSE MATERIALS
Lecture Notes
Tutorial Questions
Assignment Question
Unit Plan

Obtain from WBLE


http://wble.utar.edu.my
OVERVIEW
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
OVERVIEW Continued..
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
TOPIC 1:
Introduction to
Economics
Learning Objectives
Understand the definition of
economics and the two main
branches of economics
Four categories of resources
The study of scarcity, choice and
opportunity costs
Positive and normative analysis
Basic economic problems
WHAT IS ECONOMICS?
WHAT IS ECONOMICS?
Study of how:
Society chooses
to allocate its
scarce (limited)
resources
Towards the
production of
goods and
services
In order to satisfy
unlimited wants
2 BRANCHES OF ECONOMICS
Microeconomics
Study of decision making by:
single individual
Households
Firms
Industries
Government
Interaction between households and firms in the
marketplace
Macroeconomics
Study of decision making by:
Economy as a whole
Total / Aggregate economy
WHAT ARE RESOURCES?
Basic categories of inputs used in
the production of goods and services

Also known as
factors of
production
4 Types of Resources

LAND

LABOUR

CAPITAL

ENTREPRENEURSHIP
What is a land resource?
any natural
resource
provided by
nature
Forests, oil,
wind, sea, air
Natural resources:
Renewable resources
nature can automatically
replace (e.g. clean air).

Non-renewable
resources
nature cannot
automatically replace
(e.g. oil).
RENEWABLE RESOURCES
Renewable resources are
natural resources that can
be replenished in a short
period of time.

Solar Geothermal
Wind Biomass
Water
NONRENEWABLE RESOURCES

A nonrenewable resource is a natural


resource that cannot be re-made or
re-grown at a scale comparable to its
consumption.
What is labour?
the mental and
physical
capacity of
workers to
produce goods
and services
Service of farmers, lecturers,
lawyers, bankers, etc all forms
of labour.

Ability to produce differs from


one country to the other because
of difference in:
Education
Experience
Health
Motivation of workers
What is capital?
the physical
plants,
machinery and
equipment
used to produce
goods and
services.
Money as Capital?
In the study of economics, capital
money asset.
Money (financial capital) is used
to purchase capital
(machineries & equipment).
Financial capital by itself is
not productive.
What is
entrepreneurship?
the creative
ability of
individuals to seek
profits by taking
risks and
combining
resources to
produce
Labor
Land Capital

Entrepreneurship organizes
resources to produce goods
and services
What is the
economic problem?
Providing for peoples
wants and needs in a
world of scarcity.
SCARCITY

Condition in which:
Human wants are GREATER than
The available limited supply of
time, goods, resources
What are the three
fundamental
economic questions?
1.What to produce?
2.How to produce?
3.For whom to produce?
LINKS BETWEEN SCARCITY,
CHOICE & OPPORTUNITY COSTS

SCARCITY CHOICE OPPORTUNITY


COST

-Scarcity means no society has enough resources to


produce all the goods and services necessary to satisfy
all human wants.
-There is no such thing as a free lunch.
-This means each decision has a sacrifice in terms of an
alternative not chosen (opportunity cost).
What is
opportunity cost?
The best
alternative
sacrificed
for a chosen
alternative
What opportunity cost
may you now be
experiencing?
The most money that you
could be making if you
were somewhere else
instead of studying these
slides
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
EXAMPLE
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.
Positive versus Normative
Analysis
Positive statements are statements
that describe the world as it is.
- statements that are verifiable

Normative statements are


statements about how the world
should be.
- statements based on value
judgment (opinions)
What conclusion
can we make?
When opinions or points of
view are not based on facts,
they are scientifically
untestable
POSITIVE vs. NORMATIVE
ANALYSIS
Positive or Normative Statements?
- The inflation rate in the United States is
?
too high.
? The unemployment rate
in the United States is
currently 5.4%.

?
POSITIVE vs. NORMATIVE
ANALYSIS
State governments should be allowed to ?
collect from tobacco companies the costs
of treating smoking-related illnesses

? among the poor.

An increase in the minimum wage will


cause a decrease in employment among
the least-skilled. ?
PROBLEM APPLICATION
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
Reference
Chapter 1
Tucker, I.B (2011). Economics for
todays world. (7th ed.). Mason, OH:
Thomson South Western.
LECTURE NOTES