Lecture 1- Introduction to Microeconomics.ppt

Lecture 1- Introduction to Microeconomics.ppt - LECTURE 1...

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LECTURE 1 1 Introduction To Microeconomi cs Introduction To Microeconomi cs
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What Is Economics? Human wants are unlimited , but resources are not. This creates scarcity. Scarcity, in turn, forces us to make choices. Economics is the study of the choices made by people who are faced with scarcity.
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Society’s Choices An economic system answers three basic fundamental questions.
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Society’s Choices What goods and services do we produce? If we devote more resources to the production of one good, we have fewer resources for the production of another. How do we produce these goods and services? How do we organize production and what methods and techniques should we use? For whom do we produce the output? How should we distribute the output produced among members of society?
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Factors of Production Factors of production, or productive inputs, are the resources we use to produce goods and services: Natural resources Labour Capital Enterpreneurship
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Factors of Production Natural resources: The things created by acts of nature such as land, water, mineral, oil and gas deposits; renewable and nonrenewable resources. Labor: The human effort, physical and mental, used by workers in the production of goods and services.
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Factors of Production Physical capital: All the machines, buildings, equipment, roads and other objects made by human beings to produce goods and services. Human capital: The knowledge and skills acquired by a worker through education and experience.
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Factors of Production Entrepreneurship: The effort to coordinate the production and sale of goods and services. Entrepreneurs take risk and commit time and money to a business without any guarantee of profit.
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Microeconomics vs. Macroeconomics Microeconomics is the branch of economics that examines the behavior of individual decision-making units—that is, business firms and households. Macroeconomics is the branch of economics that examines the behavior of economic aggregates income, output, employment etc. – on a national / global scale.
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PRINCIPLE of Opportunity Cost What you sacrifice is the next best choice. To determine opportunity cost we consider only the best of the possible alternatives. PRINCIPLE of PRINCIPLE of Opportunity Cost Opportunity Cost The opportunity cost of something is The opportunity cost of something is what you sacrifice to get it. what you sacrifice to get it. PRINCIPLE of PRINCIPLE of Opportunity Cost Opportunity Cost The opportunity cost of something is The opportunity cost of something is what you sacrifice to get it.
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