Skip to content

Instantly share code, notes, and snippets.

@faresbakhit

faresbakhit/HU121-Fundamentals-of-Economics.md

Last active January 20, 2025 00:51
Show Gist options
  • Save faresbakhit/fb5274bc5730f079ab012114d30930ec to your computer and use it in GitHub Desktop.
Save faresbakhit/fb5274bc5730f079ab012114d30930ec to your computer and use it in GitHub Desktop.
Download ZIP
Raw
HU121-Fundamentals-of-Economics.md

HU121: Fundamentals of Economics

Dr. Maie Mostafa Gad
FCAI-CU Spring 2023-2024

Definitions

  • Economics: Is a science that study of human efforts to satisfy unlimited wants with limited resources.
  • Economy: Is the relationship between production, trade and the supply of money in a particular country or region.
  • Economic System: Is the way a society sets different methods of tackling the economic problem (Types: Market, Command, and Mixed).
  • Scarcity (also called paucity): Is the fundamental economic problem of having unlimited human wants in a world of limited resources.
  • Microeconomics: The study of how households and firms make decisions and how they interact in markets.
  • Macroeconomics: The study of economy-wide phenomena including inflation, unemployment, and economic growth.
  • Production Possibilities Curve (PPC): Is a model that shows alternative ways that an economy can use its scare resources.
  • Opportunity Cost: Is your second choice-what you give up when you make a decision.
  • Efficiency: Means using resources in such a way as to maximize the production of goods and services (Types: Productive and Allocative).

Definition of Economics

  1. Wealth Definition, Adam Smith:

An enquiry into nature & cause of wealth of nations.

  1. Welfare Definition, Alfred Marshall:

Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and the use of the material requisites of well-being.

  1. Scarcity Definition, Robbin:

Economics is the science which studies human behavior as a relationship between scarce means which have alternative uses.

Basic Economics Problems

  1. Unlimited Wants
  2. Limited Resources
  3. The Economic Problem (Scarcity)

Basic Economic Questions

The "Three Basic Economic Questions" these are the questions all nations must ask when dealing with scarcity and efficiently allocating their resources.

  1. What to produce?
  2. How to produce?
  3. For whom to produce?

Factors of production (Resources)

Type Description Reward
Land Natural Resources Rent
Labour Physical and mental work of people Wages
Capital Man-made tools and machines Interest
Entrepreneur Managers and organisers Profit

Types of Economic Systems

  1. Market Economies
  2. Command Economies
  3. Mixed Economies

Positive & Normative Economics

Positive Economics Normative Economics
Nature Descriptive Prescriptive
What it does? Analyses cause and effect relationship Passes value judgment
Study of ... What actually is What ought to be
Testing Statements can be tested using scientific methods Statements cannot be tested
Economic issues It clearly describes economic issues It provides solution for the economic issue, based on value

Production Possibilities Curve (PPC) Key Assumptions

  1. Only two goods can be produced
  2. Full employment of resources
  3. Fixed Resources (Cateris Paribus)
  4. Fixed Technology

Types of Efficiency

  1. Productive Efficiency
    • Products are being produced in the least costly way.
    • This is any point on the Production Possibilities Curve.
  2. Allocative Efficiency
    • The products being produced are the ones most desired by society
    • This optimal point on the Production Possibilities Curve depends on the desires of society.

Shifters of the Production Possibilities Curve (PPC)

  1. Changes in resource quantity or quality.
  2. Change in technology.
  3. Change in trade.

Types of Markets

  1. Perfect Competition: Is a market of large number of buyers and large number of sellers, selling homogeneous product. (Seller as price taker: No participant with market power to set prices)

  2. Monopoly: Is a market of large number of buyers and single seller, selling homogeneous product (Seller/Monopolist as price maker)

  3. Monopolistic Competition: Is a market of large number of buyers and sufficiently large number of sellers selling heterogeneous or differentiated product.

  4. Oligopoly: Is a market of large number of buyers and few sellers selling differentiated products (Actions of any seller will materially affect price). (Kinked-Demand curve)

  5. Duopoly: Is a market of large number of buyers and two sellers selling differentiated products. (Special case of oligopoly)

Meaning of Demand

Any desire or willingness backed by purchasing power.

Determinants of Demand

  1. Price of the product (P) (Basic determinant of demand) (Usually, an inverse relationship with demand)
  2. Price of substitutes (Psub)
  3. Income (Y) (Reveals the purchasing power) (Positive correlation with demand)
  4. Taste and Preference (T/P)
  5. Habit (H)
  6. Fashion (F)
  7. Expectations about future price change (Fp)
  8. Advertising (A)
  9. Government Policy (GP)
  10. Climate / Season (CI)
  11. Social Factor (S)
Sign up for free to join this conversation on GitHub. Already have an account? Sign in to comment