Introduction to Economics

Definition of Economics
1. A study of how people make choices to satisfy their unlimited wants
through allocating limited resources (2 marks)
2. A branch of social science (1 mark), which explains and predicts human
behaviors and social phenomena using different
economic theories (1-2 marks).
Unlimited Wants
1. Wants are all kinds of human desires.
2. Wants can be concrete and abstract.
3. Wants are unlimited.
4. New wants appear after some wants are satisfied.
5. Human wants can never be satisfied.
Limited Resources
1. Resources can produce goods to satisfy wants
2. Three types: (1) Natural resources, (2) Man-made resources, (3) Human
resources
Scarcity
Definition: situation that resources are not enough to satisfy
human wants
Resources are limited.
1. Limited resources cannot fully satisfy unlimited human wants.
2. Scarcity is relative (relative to our wants).
3. Economics is to study how to satisfy unlimited wants with limited
resources.
Choice
1. As people face scarcity, we must make choice.
2. When some wants are chosen to be satisfied, other wants have to be
forgone .
Competition
Definition: two or more people compete for limited resources.
1. Price competition: a criterion (plural: criteria; ) to allocate resources

to anyone paying a higher price.

2. Non-price competition: using criteria other than price. (e.g. first come
first serve, random)
3. The criteria do not favor everyone.
4. Those in disadvantage is discriminated against.
5. Competition leads to discrimination inevitably.

Opportunity Costs***
Definition: value of the highest valued option forgone.
1. Opportunity costs changes when the value of the highest-valued option
forgone change.
2. Opportunity costs would never change when the value of the option
chosen change
Case study

Zenus wants to have a marriage.

Priority

1. Alan (10 marks)

2. Bob (8 marks)

3. Calvin (6

marks)

Zenus chose Alan.

Opportunity Cost= highest-valued option forgone=8 marks.

Case 1. Alan smokes (10 marks drop to 9 marks)

Opportunity Cost= highest-valued option forgone=8 marks.

Case 2. Alan is violent. (10 marks drop to 2 marks)

Opportunity Cost= highest-valued option forgone=8 marks.

Case 3. Bob is rich (8 marks rise to 9 marks)

Opportunity Cost= highest-valued option forgone=9 marks.

Case 4. Bob is rich, tall, and handsome (8 marks rise to 11 marks)

Opportunity Cost= highest-valued option forgone=11 marks.

Case 5. Bob is short (8 marks to 7 marks)

Opportunity Cost= highest-valued option forgone=7 marks.

Case 6. Bob is ugly, poor and short (8 marks to 2 marks)

Opportunity Cost= highest-valued option forgone=Calvins value=6

marks.

Case 7. Calvin owns a car and a flat (6 marks to 10 marks)

Opportunity Cost= highest-valued option forgone=Calvins value=10

marks.

Free goods and economic goods

Free goods

Economic goods

Quantity is sufficient to satisfy

Quantity is insufficient to

all our wants.

satisfy all our wants.

More of them is not preferred.

More of them is preferred.

Not scarce

Scarce

Must be free of charge

Can be free of charge or priced

Opportunity cost= 0

Opportunity cost involved in

obtaining and producing.

Three economic problems

What to

What goods to produce

produce

What quantities

How to

Method of production

Whom to

Who can get goods

produce

How many they can get

produce