Ch 01 255p62

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Prepared By: Malik Mumtaz Ahmed (0300-4907961) 01

CHAPTER-01 BASIC ECONOMIC CONCEPTS 27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

MICROECONOMICS: Microeconomics is the study of an individual decision-making unit ,e.g. price of a good, consumption of an individual consumer etc. In Microeconomics we study the following: Consumption theory Production theory Exchange theory Distribution theory 27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

The following Assumptions are made while analyzing Microeconomic problems: Full employment . Leissez-faire.

27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

MACROECONOMICS: Macroeconomics is the study of aggregates and averages of a country as a whole, e.g. National income, Employment, Inflation etc. The followings are studied in Macroeconomics: National income Employment Inflation Growth 27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

WANTS: Wants are goods and services which people desire for satisfaction. Wants have the following characteristics:  Unlimited in number.  Repeated in nature.  Varying importance.

27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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Free goods Free goods are those goods, which posses utility but have no price e.g. air, sunshine etc. Characteristics of free goods: (a) Unlimited. (b) Posses utility. (c) Have no price. 27-Mar-12

Economic goods Economic goods are those goods which posses utility and price e.g. T.V., Book etc. Characteristics of economic goods: (a) Limited. (b) Posses utility. (c) Have a price.

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

SPECIALIZATION: Specialization occurs where a worker make just one type of product or provide one type of service e.g. A Farmer, a doctor.

DIVISION OF LABOUR: Division of labour means sub-specialization. Division of labour occurs when a task is divided in to sub-specialty, which makes worker more expert in their part of work.

27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

TECHNOLOGY: Technology means the methods and techniques to produce goods and services.

SCARCE RESOURCE: A scarce resource is a resource for which the quantity demanded at nil price would exceed the available supply. e.g: labour, time, etc.

27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

PRODUCTION POSSIBILITY FRONTIER/CURVE (PPF): Production possibility frontier is a curve showing the possible production of two commodities or groups of commodities with the use of given limited resources.

27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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Books

01-BASIC ECONOMIC CONCEPTS

400 360 300 260

B

C

T D

R

200 100

O

27-Mar-12

1

2

M 3

Missiles

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

OPPORTUNITY COST: Opportunity cost means next best alternative forgone. It is the quantity of a commodity sacrificed to produce an alternative commodity.

Opportunity cost of: 1st Missile=40 Books, 2nd Missile=100 Books and 3rd Missile=260 Books.

27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

Since the factors of production are incomplete substitute of each other, the opportunity has an increasing trend. o Point R shows inefficient allocation of resources. o Point T can be attained only when the entire PPF shifts outwards.

27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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Books

01-BASIC ECONOMIC CONCEPTS

400 360 300 260

B1 B

C

T S

D

R

200

100 O 27-Mar-12

1

2

M 3

M1 Missiles

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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01-BASIC ECONOMIC CONCEPTS

CAUSES OF SHIFT IN PPF:  Change in technology.  Change in natural resources.  Change in capital.  Change in human capital.

27-Mar-12

Prepared By: Malik Mumtaz Ahmed (0300-4907961)

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