Prepared by: Sameer Khan

Business Economics-I

Presented by: Sameer Khan

Prepared by: Sameer Khan

Topics
Economic Activity Economy Definitions of Economics Types of Economics Problems of Economy Factors of Production Economic Systems

ECONOMIC ACTIVITY
Any activity which is performed by the sake of reward or compensation. For example: Health services Education services Production trading

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ECONOMY
Economy is a place where people perform economic activities.

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SECTORS IN AN ECONOMY

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Other sectors Fishing

Industrial sector

Mining

Agricultural sector

Service sector

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What is Economics?

Definition
Economics is the science of wealth.
By: Adam Smith

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Wealth means:
GOODS

SERVICES

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Process of wealth
Production of Wealth (1)

Exchange of Wealth (2)

Consumption of Wealth (4)

Distribution of Wealth (3)

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Definition of Economics
Economics is the science which studies human behavior as a relationship between Unlimited wants and Scarce Resources which have alternative uses.
By: Prof. Robins

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Study Of Economics

Resources Limited

Wants Unlimited

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Unlimited Wants (1)

Economic Activity (2)

Process Of Economic activity

Satisfaction (5)

Reward (3)

Acquisition of Goods & services (4)

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TYPES OF ECONOMICS
MICRO ECONOMICS MACRO ECONOMICS

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MICRO ECONOMICS
Micro means a Millionth part of a thing.
Micro Economics studies the behavior of the following: individuals, firms households or; specific Markets.
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MACRO ECONOMICS
Macro word has been derived from a Greek word MACROS, which means Large. Macro Economics focuses on the whole economy.
In this part of Economics we study the aggregates of an economy with a view to focusing on the economy as a whole.
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Examples:
If we talk about the demand of LUX, this is called Micro aspect but if we talk about the Aggregate demand of all types of soaps this is called Macro Aspect. If we analyze about the problems of Sugar industry of Pakistan, this is called Micro aspect but if we talk about the problems of all industries in Pakistan this is called Macro Aspect

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Examples:
If we analyze about the problems of Industries of Pakistan and compare them with the Problems of all over the Industries in the World, then analysis of problems of Pakistani Industries is called Micro aspect but The comparison of them with the problems of all industries in the World, this is called Macro Aspect of the study of Economics.

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DIFFERENCE BETWEEN MICRO AND MACRO ECONOMICS

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Description

Demand
Supply

Micro Economics Individual Individual

Macro Economics Aggregate Aggregate

Income
Expenditure

Individual
Individual

National
Aggregate

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Description

Micro Economics

Macro Economics

Prices
Fiscal & Monetary policy Savings Consumption Investment

Individual Product Aggregate OR Services

These are not the subject of Micro Economics These are the subject of Macro Economics

Individual Individual Individual

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Aggregate Aggregate Aggregate

FACTORS OF PRODUCTION
LAND LABOUR CAPITAL ORGANIZATION

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FACTORS OF PRODUCTION
Land means all natural resources such as soil, sea,
plane area, forest, mountains etc.

Labor means any Mental or Physical efforts which are

applied for the sake of reward . e.g. doctors, teachers, auditors, lawyers etc.

( Any voluntary effort is not included in the definition of labor in Economics.)

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FACTORS OF PRODUCTION
Capital means all man made resources which
are used for the production of Goods & Services. e.g. Machines, Plants, Building etc.

( Money is not exclusively considered as Capital)

Organization is the act of combing other

factors of production for production of Goods & Services.

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Characteristics of Land
Free Gift of Nature Mobility of land impossible Supply is fixed. Different Characteristics.

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Characteristics of Labor
Un identical labor Active factor of production. Labor can not be stored . Mobility of labor is possible Supply of labor is inelastic (Japan Population) Inverse correlation between supply of labor and wage rate Education plays important role.

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Characteristics of Capital
Mobility can be possible. Supply is limited. It is a passive factor of production. It depreciates its worth. (Zimbabwe/ Germany) Its supply is elastic.

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Characteristics of Organization
Planning of Business. Responsibility of applying suitable combination of factors of Production. Enterprising Qualities (Faces Risk) Responsible for Profit & Loss. Responsibility for distribution of Reward among factors of Production.

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Comparison between Factors of Production Description Mobility Land Labor Capital Organization
Not possible possible Rent Limited wages Limited possible interest Limited possible profit Limited

Reward
Supply

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BASIC PROBLEMS OF ECONOMY

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Basic Problems of Economy.

What to Produce? How to Produce? For whom to Produce?

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What to Produce?
The first problem of economy is that what goods & services are produced and in what quantity? A society must determine how much of each of the many possible goods and services it will make and when they will be produced. Will we produce Consumer goods or Capital goods?
Consumer Goods are used by ultimate customers

means households. e. g Shoes, Shirts, Pizza, Mobile etc Capital Goods are used by Manufactures e.g. Machines, Plants etc
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How to Produce?
A society must determine: How the goods and services are to be produced or, what technique is to be applied for that purpose? Will Factory be run by People or automatic Machines? Will Industry be Labor Intensive or Capital Intensive?
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Capital Intensive Industry means An industry in which Capital is applied more than FOP. E.g. Automobile Industry

Labor Intensive industry means an industry in which Labor involvement is more than other factors of Production.
E.g. A factory where shirts are stitched.
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For whom to Produce?

Who gets to eat the fruit of economic activity? This may be determined through needs of individuals. Are many people Poor or few Rich?

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ECONOMIC SYSTEMS

CAPITALISM

SOCIALISM
ISLAMIC ECONOMIC SYSTEM MIXED ECONOMY
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CAPITALISM
The sole philosophy of capitalist economy is Economic freedom of the making. Under this doctrine the people are allowed freedom regarding Production, exchange, distribution & consumption of goods and service.

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CAPITALISM
The people are allowed to indulge in their economic activities in accordance with their choice. Government does not unreasonably interfere with the economic activities of the people.

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Main Features of Capitalism

Private right of ownership Price Mechanism (Forces of Demand and supply decide prices) Competition Inexpensive Prices Profit Motive Consumer is the king. Minimum Influence/ Role of Govt. Freedom of Enterprise. Wastage in competition(Geo/ ARY/ ATV) Right of Inheritance Choice of Profession
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SOCIALISM
The term "socialism" was first used in the context of early-19th century Western European social critics. In this period, socialism emerged from a diverse array of doctrines and social experiments associated primarily with British and French thinkers
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SOCIALISM
Socialism is a class of ideologies favoring a socio-economic system in which property and the distribution of wealth are subject to social control. As an economic system, socialism is associated with collective ownership of the means of production.
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SOCIALISM
The modern socialist movement had its origin largely in the working class movement of the late-19th century. In this period, the term "socialism" was first used in connection with European social critics who condemned capitalism and private property.

For Karl Marx, who helped establish and define the modern socialist movement.
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Main Features of Socialism

Absence of the concept of Private ownership. Planned/ Controlled Economy. Investment for Public welfare. No Existence of competition. Prices are decided by Government. Official guarantee for basic Needs of Life. All future decisions for public are taken by Govt. Economic Equality.

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Mixed Economy
This system provides a combination of both the capitalist and socialist system of economy.

The making of this system is divided into three different sections:

1) Private Sector 2) Public Sector 3) Semi Public/ Autonomous Bodies
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Sections of Mixed Economy

1) Private Sectors:
Means of productions are owned by private entrepreneurs so that for this matter private entrepreneur are free to combine their resources as they choose and thereby minimize their cost accordingly. However, their activities are regulated by govt. through certain policies. Labor laws Tax Laws Monopoly Control Laws Trade Marks Laws Corporate Laws
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Sections of Mixed Economy

2) Public Sector:
Here the govt. plays a vital role in the production of certain commodities. In this sector no private investment is allowed. Pakistan Mineral Development Corporation. State bank of Pakistan Pakistan Industrial Development Corporation Pakistan Railway
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Sections of Mixed Economy

3) Semi- Government Sector:
An organization which is owned by g Govt. as well as General Public e.g. PNSC KAPCO PPL PSO HUB CO PIAC PTCL
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Descriptions
Right of Private Property.
Freedom of enterprise.

Capitalism Socialism Mixed

Islamic Economy Economic System

allowed
allowed

Not allowed
Not allowed

May be allowed
May be allowed

allowed
allowed

Competition. Consumer is the King. Price Mechanism.

Exists yes

Does Not May exist exist No May be

exists Yes but up to some extent Market forces plus Govt. intervention

On the basis of demand and supply

Prices are decided by Govt.

Exists

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Descriptions

Capitalism

Socialism Mixed

Islamic Economy Economic System

Profit motive as well as Public interest Allowed Profit motive as well as Public interest

Motive.

Earn Maximum

Public welfare & interest

Freedom of Choice

allowed

Not allowed

Allowed

Role of Government

Keynes stressed but with certain limitations

Major Role

Govt. intervene in inevitable situations

Govt. Intervention Necessary

Factors of Production

Land, Labor, Capital Organization

Land, Labor

Land, Labor, Capital Organization

Land, Labor, Capital

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Descriptions
Halal & Haram

Capitalism

Socialism

Mixed Islamic Economy Economic System

It depends on the religion/ Constitution of the State Not Allowed Exists Exists Haram is strictly prohibited

No distinction

At the discretion of Government

Hoarding Monopoly Cartels

No restriction Exists Exists

Not possible Doesnt exist Doesnt exist Government Savings

Not allowed Not Allowed Not allowed

Savings

Unlimited

Unlimited

Moderate

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