Chapter no.

The Fundamentals of Economics

Sir Rizwan - ul - Hassan

Foundations of Economics
Scarcity of resources Choice-Spreading whole of human life Deals in human economic behavior

Definitions of Economics
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people Economics is the science to study choices Economics is the study of human behavior as a result of limited resources and unlimited needs while resources can be used alternatively

Basic concepts

Scarcity leads to choice A rational choice involves cost and benefit Rational choice means trade off Concept of margin or extra

What is Microeconomics

Branch of economics which studies the behavior of individuals, families and business firms. In other words it is the study of institutions how they make decisions . The institution may be a household institution or business or nonbusiness institution.

Economic Organizations
Three types of economies
Market

economy Command economy Mixed economy

Three kinds of Problems

Every economy or government of a country faces three types of problems

What commodities should be produced How these commodities should be produced For whom these are produced

How production takes place

Four factors of production

Land
Labor Capital

Entrepreneur

How these factors are combined?

There

may be many possible ways for producing a commodity

Production for whom

People consume goods for the satisfaction of needs Sources of income are wages , rents , interest and profit. Different people have different types of needs. Producers have to identify who will use these goods

What is Market

It is the mechanism of interaction through different modes between buyers and sellers.

The Invisible Hand

This is the hand which helps efficient flow of goods and services from producers to consumers in the competitive market.