Introduction to Economics

*Hi,feel free to share your knowledge related to The Introduction to Economics ūüôā

1)Why we need to know Economics and Management as IT Professionals?

  • When we take IT professionals,we are a small part in a large economy.
  • We might be entrepreneurs who are running IT firms in the future.
  • We might work in non-IT firms where we have to offer IT solutions to various business problems.
  • We might need to rise up the corporate ladder up to the highest level of management where strategic decisions are made.

2)How are we use this knowledge?

  • In the economy aspect—>We can use this knowledge to ¬†understand market conditions for the product or the service the employer offers.
  • When the demand is higher than the supply,supplier becomes powerful to set prices in their favour.So this knowledge helps to understand the opportunities available in the job markets.
  • In the management aspect—>We can use knowledge to handle a project which should be delivered on a pre-determined date easily by planning it by identifying smaller segments,
    • that make ¬†up the whole project
    • assess your strengths and weaknesses
    • set targets
    • assess the interdependency of separate tasks
    • delegate work among team members
    • monitor and control their work
    • solve many issues/obstacles until the project is successfully completed.

3)What is Economy?

  • The relationship between production,trade and the supply of money in a particular country or region.
  • In simple terms—>Economy is treating the world as a marketplace and deals with the flow of money.
  • Oikonomos—>One who manages a household.

4)What is Economics?

*Economics has many definitions , one of them is,

  • “The study of how a person or society meets its unlimited needs and wants through the effective allocation of resources“-Paul Samuelson
  • In simple terms—>Economics is the study of the world as a market.It also includes,all the factors which influence the flow of money.

OR you can say,

[The study of how individuals and societies make decisions about ways to use scare resources to fulfill wants and needs]

5)A little bit about the history of Economics!

  • It is said that history of modern economics started with the publication of “Wealth of the nation” by Adams Smith in 1776
  • Therefore, he is known as the father of modern economics.

6)Economics divide into two parts

  1. Microeconomics
  2. Macroeconomics

*Microeconomics—>The study of the economic behaviour of individual units of an economy(such as person,household,firm or industry) in decision making and allocation of resources.

*Macroeconomics—>The study of the behaviour of the whole economy ¬†or economic systems instead of the behaviour of individuals.

7)Positive and Normative statements of Economics

  • Positive—> Positive economics is objective and fact based.So, positive economic statements ¬†do not have to be correct but they do not have to ¬†be correct but they must be able to tested and proved or disproved.
  • Normative—>Normative economics is subjective and value based.So,normative economics statements are option based and cannot be proved or disproved.
Positive Normative
Eg:- Why do people use money.

[No value judgement here]

Eg:- Should people use money?

[Value judgement ]

Here is a youtube video for you to understand about Economics easily (you may not need Econometrics on the video) ūüôā

8)Basic Economic concepts,

[By using a diagram],

20170325_090643-1[1]

  • Needs
    • This can be defined as goods or services that are required.
      eg:- food,clothing,shelter and healthcare
  • Wants
    • Wants are goods or services that are not necessary but that we desire or ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬†wish for.
  • Characteristics
    • Wants are unlimited– Human’s¬†mind is so made that he never completely satisfied .So, there is no end to human wants. When one want is satisfied another want will come ,That is why we can tell this is never ending cycle of want.
    • Wants are recurring-Some wants are recurring in nature.
      eg:- food we require again and again.
    • Wants are change over time-Wants are not always the same. It varies with individual to individual. People want different things at different times and in different places.
    • Wants are complementary–¬†It is a common experience that we want things in groups. A single article out of group can not satisfy human wants by it self. It needs other things to complete its use.
      eg:- a motor-car needs petrol and mobile oil it starts working. Thus the                            relationship between motor-car and petrol is complementary.
  • Scarcity
    • Scarcity is that resources are scarce (not enough)when compared to the unlimited needs and wants we have.
    • This is actually a comparative definition.
    • Scarcity refers to the basic economic problem.
    • This is common for every society despite of being a rich or a poor country..
  • Opportunity Cost
    • the cost of an alternative that must be forgone in order to pursue a certain action.
    • In simple terms—>It is the value of the next best alternative or you can say choice that one gives up when making a decision.
    • Features,
      • Difficult to measure
      • No need of cash outflow
      • Non-monetary items also included
        [non-monetary–>Some assets and liabilities appearing on the balance sheet that are not cash.]

9)What are Economics questions?

  • What to produce? -[This defines what goods to produce]
  • How to produce?-[This defines how to use resources in the production process]
  • Whom to produce?-[This defines who receives the finished goods and when to ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬†produce the goods]

10)Why we need Economic questions?

  • Because answering these questions is essential for an economy to function properly.

11)What is an Economic System?

  • Countries and government distribute resources and trade goods and services .This is controlling factors of production.

12)What are factors of production?

  • They are resources that can be viewed as the foundation of any economy.They are what people use to produce goods and services.

13)Types of factors of production.

  1. Land
  2. Labour
  3. Capital
  4. Entrepreneurship

    1)Land

  • Land is all the natural resources used in production.
    • eg:-Land,Forest,Minerals,Oil
  • A gift of nature.
  • Limited supply.
      Reward for Land =>Rent

 2)Labour

  • Human effort use in production
  • Either physically or mentally
  • Education and Training,wage rates,better management will improve labour productivity.
     Reward for Labour=>Wages

 3)Capital

  • Man-made resources that are used in production
    • eg:-Factories,Buildings
  • Have a huge impact on labour productivity and production capacity.

    Reward for Capital=>Interest

4)Entrepreneurship

  • Manage all other resources
  • Bears risk
  • Takes production decisions.¬† Reward for Entrepreneurship=>Profit

14)Types of Economic Systems

  • Market Economies
  • Command Economies
  • Mixed Economies

15)Market Economies

  • Private ownership of factors of production
  • No government involvement in economic decision and ¬†business activities.
  • Profit is the main motive of all businesses.
  • Producers are free to produce what they want,how much and whom they want to produce.
Advantages Disadvantages
*Price is determined by the demand and supply. *Certain goods and services may not be provided.
*Responds quickly to the people’s wants *Consumption of harmful goods may be encouraged.
*Wide variety of goods and services. *Leads to economic inequality.
*Efficient use of resources encouraged.

16)Command Economies

  • Government makes all economic decisions.
  • Government owns all resources(except Labour)
  • Government will answer basic economic questions.
Advantages Disadvantages
*Ensure a more equal distribution of income and wealth. *Little consumer choice
*Essential goods or services will be provided to the community.

eg:-Health care, Education

*Little variety of goods and services.
*Only produce the required production. *Loss of individual freedom.

17)Mixed Economies

  • This is a mixture of both market and command economies.
  • This has a private sector as well as a public sector.

18)Market Economy vs Command Economy

Market Economy Command Economy
*Usually, occurs in democratic states. *Usually, occurs in communist or authoritarian states.
*Individuals and businesses make their own economic decisions *The state’s central government makes all of country’s economic decisions.
eg:-Canada ,Switzerland eg:-China, North Korea

19)Sectors of Economy

  • Primary
  • Secondary
  • Tertiary
  • Quaternary -For educational sector
  • Quinary-For decision making sector

[Primary ,Secondary and Tertiary examples are on the diagram.]

20170325_111932-1[1]

*Hope you got a help for your studies.If you have theory points related to The introduction to Economics that I haven’t included,feel free to share your knowledge. ¬†ūüôā

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