Introduction to economics
A lot of statements have been said about economics as a subjust, The following are some of the
staments
-Some say it is a painfull elaboration of the obvious
-Some say it is everything we know in a language we don't understand
Thats why we came up with two analysis the positive and normative statements
A positive statement
In economics is a fact-based statement that can be tested or proven true or false.
For example
If price of a consumer good increases quantity demand decreases ceteris paribus.
A normative statement
economics is opinion-based and reflects beliefs or values about how the world should be. It can't be
proven true or false with facts alone.
Example
"The government should increase the minimum wage to reduce poverty."
With all this we as economists we came up with our standard definition which is
Economics is the study of how people, businesses, governments, and societies make choices about
using limited resources to satisfy their needs and wants.
There are three terms vital on the definition scarce, choice and opportunity cost
Scarcity
It means that resources (like time, money, land, labor, or raw materials) are limited, but human
wants and needs are unlimited.
Because of scarcity, we have to make choices about how to use resources efficiently. It’s the basic
problem that gives rise to economic questions like what to produce, how to produce, and for whom
to produce.
Choice
in economics refers to the decision-making process individuals, businesses, and governments face
when selecting how to use limited resources.
Because of scarcity we can’t have everything we want—so we must choose between alternatives.
Every choice involves an opportunity cost which is the value of the next best alternative given up.
opportunity cost
Is a key concept that arises due to scarcity. Since resources are limited, every decision involves a
[Link] is the next best alternative forgone
In simple terms:
Opportunity cost = What you give up when you choose one option over another.
It helps individuals, businesses, and governments make more informed choices by considering the
true cost—not just in money, but also in time, effort, or lost alternatives.
Production Possibility Curve (PPC)
also called the Production Possibility Frontier (PPF) is a graph that shows the maximum
combinations of two goods or services an economy can produce using all its resources efficiently.
Key points
- Points on the curve = efficient use of resources.
- Points inside the curve = underutilization.
- Points outside the curve = currently unattainable.
- The curve is usually bowed out due to increasing opportunity costs
It shows trade-offs and opportunity costs in production decisions.
Productive efficiency
on the PPC curve means the economy is producing the maximum output possible with the available
resources and technology.
On the graph, this is represented by any point on the PPC curve itself not inside or outside. It means:
- No resources are wasted.
- You can’t produce more of one good without producing less of another.
It reflects full and efficient use of inputs like labor, land, and capital.
Allocative efficiency
on the PPC curve means the economy is producing the right mix of goods and services that best
satisfies society’s wants and needs.
Illustration of Ppc curve to be done done in class(Robinson crusoe example)
On a Production Possibility Curve (PPC) the three basic economic questions what to produce, how to
produce and for whom to produce can be interpreted as follows:
1. What to Produce
- The PPC shows different combinations of goods or services that an economy can produce using all
available resources efficiently.
- Choosing a point on the PPC (e.g., more of Good A and less of Good B) reflects the decision of what
mix of goods to produce.
- For example, should the economy produce more consumer goods (like food) or capital goods (like
machinery)? The choice depends on priorities like current needs vs. future growth.
2. How to Produce
- While the PPC doesn’t show production methods directly, it assumes efficient use of resources.
- If an economy is operating on the curve it’s producing goods using the best available technology
and resource combinations.
- Choices about labour-intensive vs. capital-intensive production methods influence the shape and
position of the PPC.
3. For Whom to Produce
- The PPC doesn’t directly show distribution, but it reflects trade-offs that affect who benefits. - Once
a production point is chosen, the economy must decide how the goods will be shared among
individuals—this depends on policies, income distribution, or market forces.
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