Introduction to Economics


 Introduction to Economics

🔹 1. What is Economics?

  • Economics is the study of how individuals, firms, and governments make choices when resources are scarce.
  • It addresses the problem of scarcity and how to make efficient choices.

🔹 2. Central Economic Problems

Because resources are limited and human wants are unlimited, every economy faces three fundamental questions:

  1. What to produce?
    • Deciding which goods and services should be produced and in what quantity.
  2. How to produce?
    • Choosing the method of production (labor-intensive or capital-intensive).
  3. For whom to produce?
    • Deciding how goods are distributed among individuals and groups in society.

🔹 3. Types of Economics

  • Microeconomics:

    • Focuses on individual units like households, firms, markets.
    • Topics: Demand & supply, price, consumer behavior, cost of production.

  • Macroeconomics:

    • Studies the whole economy.
    • Topics: National income, GDP, inflation, unemployment, fiscal/monetary policy.

🔹 4. Basic Economic Terms

  • Scarcity: Limited nature of resources.
  • Choice: Selecting the best option due to scarcity.
  • Opportunity Cost: The cost of the next best alternative foregone.
  • Resources (Factors of Production):
    • Land – natural resources
    • Labor – human effort
    • Capital – man-made tools and machines
    • Entrepreneurship – risk-taker and organizer

🔹 5. Positive vs Normative Economics

  • Positive Economics: Deals with facts and cause-effect relationships (e.g., “An increase in tax reduces consumption”).
  • Normative Economics: Based on value judgments (e.g., “The government should reduce taxes”).

🔹 6. Economic Activities

  • Production – Creation of goods and services.
  • Consumption – Using goods to satisfy needs.
  • Distribution – Sharing of produced goods among people.


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