Introduction

to Economics

Agenda

History of Money
Significance of economy.
Law of Demand and Supply.
Branches of economics.

AIMUN 2010 - Introduction to

Economics

Lets go back with time.

AIMUN 2010 - Introduction to

Economics

AIMUN 2010 - Introduction to

Economics

AIMUN 2010 - Introduction to

Economics

Lets watch this

AIMUN 2010 - Introduction to

Economics

Now

AIMUN 2010 - Introduction to

Economics

Money is

Anything that people accept as

payment for goods and services
AIMUN 2010 - Introduction to
Economics

Forms of Money
All sort of things have been used as
money throughout the ages :
Eggs, Salt, pigs, leather
Gold
Paper Money
Electronic Money

AIMUN 2010 - Introduction to

Economics

Functions of Money

Measure of value
Medium of exchange
Means of payment
Store of value
Liquid asset
Is it the controller of the economy?

AIMUN 2010 - Introduction to

Economics

 Inflation: Too much money chasing

too few goods

Deflation: many goods but money is

not available

AIMUN 2010 - Introduction to

Economics

Assignment
How and by whom is money supply
controlled?
What is Fiat Money?

AIMUN 2010 - Introduction to

Economics

Now

Economics

AIMUN 2010 - Introduction to

Economics

If you asked me Whats the

importance of Economy Id tell you
thats an open-ended question.
We make economic decisions every
day
But How?
AIMUN 2010 - Introduction to
Economics

Definition
Economics is the study of how society
manages its scarce resources, including:
how people decide how much to work, save,
and spend, and what to buy
how firms decide how much to produce,
how many workers to hire
how society decides how to divide its resources between
national defense, consumer goods, protecting the
environment, and other needs
AIMUN 2010 - Introduction to
Economics

Law of Demand and Suppl

AIMUN 2010 - Introduction to
Economics

Demand
Demand comes from the behavior of
buyers.
The quantity demanded of any
good is the amount of the good that
buyers are willing and able to
purchase.
AIMUN 2010 - Introduction to
Economics

The Demand Schedule

Demand schedule:
A table that shows
the relationship
between the price of
a good and the
quantity demanded.

Price Quantity
of
of lattes
lattes demanded
$0.00 16
1.00 14
2.00 12
3.00 10
4.00 8
5.00 6
6.00 4

AIMUN 2010 - Introduction to

Economics

Demand Schedule & Curve

Price
of
Lattes

Price Quantity
of
of lattes
lattes demanded
$0.00 16
1.00 14
2.00 12
3.00 10
4.00 8
5.00 6
6.00 4
Quantit
y of
AIMUN 2010 - Introduction
to
Lattes
Economics

Supply
Supply comes from the behavior of
sellers.

The quantity supplied of any good

is the amount that sellers are willing
and able to sell.
AIMUN 2010 - Introduction to
Economics

The Market Supply Curve

P

QS
(Market)

$0.00 0
1.00 5
2.00 10
3.00 15
4.00 20
5.00 25
6.00 30

Q
AIMUN 2010 - Introduction to
Economics

Supply and Demand Together

P

Equilibrium:
P has reached the
level where
quantity supplied
equals quantity
demanded

Q
AIMUN 2010 - Introduction to
Economics

Equilibrium price:
The price that equates quantity
supplied with quantity demanded
P
S
D
P
QD

Q
AIMUN 2010 - Introduction to
Economics

QS

$0 24

1 21

2 18

10

3 15

15

4 12

20

5 9

25

6 6

30

Equilibrium Quantity:
The quantity supplied and quantity
P demanded at the equilibrium price
S
D
P
QD QS

Q
AIMUN 2010 - Introduction to
Economics

$0 24

1 21

2 18

10

3 15

15

4 12

20

5 9

25

6 6

30

Surplus:
when quantity supplied is greater than
quantity demanded.
P
Example:
S
D Surplu
If P = $5,
s
then
QD = 9
lattes
and
QS = 25
lattes
resulting in a
surplus of 16
lattes
Q
AIMUN 2010 - Introduction to
Economics

Shortage:
when quantity demanded is greater than
P quantity supplied.
Example:
S
D
If P = $1,
then
QD = 21
lattes
and
QS = 5
lattes
resulting
in a
shortage of 16
lattes
Shortag
Q
e

AIMUN 2010 - Introduction to

Economics

Branches of Economics
AIMUN 2010 - Introduction to
Economics

Microeconomics Vs. Macroeconomics

Microeconomics:
Is the study of how individual
households and firms make
decisions, interact with one another
in markets.
Macroeconomics:
Is the study of the economy as a
whole.
AIMUN 2010 - Introduction to
Economics

The Circular-Flow Diagram

The Circular-Flow Diagram: A

visual model of the economy, shows
how dollars flow through markets
among households and firms.
Includes two types of actors:
households
firms

Includes two markets:

the market for goods and services
the market for factors of production
AIMUN 2010 - Introduction to
Economics

Factors of Production
The factors of production are the
resources that the economy uses to
produce goods & services. They
include:
labor
land
capital (buildings & machines used in
production)
entrepreneur
AIMUN 2010 - Introduction to
Economics

FIGURE 1: The Circular-Flow Diagram

Firms

Households:
Households:
own
own the
the factors
factors of
of production,
production,
sell/rent
sell/rent them
them to
to firms
firms for
for
income
income
buy
buy and
and consume
consume goods
goods &
&
services
services
Household
s

AIMUN 2010 - Introduction to

Economics

FIGURE 1: The Circular-Flow Diagram

Firms
Firms:
Firms:
buy/hire
buy/hire factors
factors of
of
production,
production,
use
use them
them to
to produce
produce
goods
goods and
and services
services
AIMUN 2010 - Introduction to
sell
sell goods
goods &
& services
services
Economics

Household
s

FIGURE 1: The Circular-Flow Diagram

Revenue
G&S
sold

Markets for
Goods &
Services

Firms
Factors of
production
Wages, rent,
profit

Spending
G&S
bought

Household
s
Markets for
Factors of
Production
AIMUN 2010 - Introduction to
Economics

Labor,
land,
capital
Income

Assignment
What are the measures of the
Economy performance other than
GDP???

AIMUN 2010 - Introduction to

Economics

Wall Street Journal

The Wall Street Journal is a is a rich
source
of information which provides real life
examples of micro- and macro
economic
activities. Check todays issue to see
the
most current news.
http://www.wsj.com
AIMUN 2010 - Introduction to
Economics

Thank You