Module 1

Scarcity wants they attempt to satisfy but limited means so choices must be
made.
Economics is the stud of these choices
Societies
Centrally planned economies small group making major economic decisions
Capitalist/Free enterprise forces of demand and supply resolve scarcity-choice
issues
Traditional methods of economic organizations positional in society determines job
and rewards
Many levels of wants and may choices avoidable
But resources are always limited ( except nature to some extent).
Therefore always scarcity.
Wants > Resources
Free goods without human effort. Increase well being eg rain, air.
All other gods require human effort.
Recourses anything the help production of goods or services ( including assets,
labor and other goods)
Always limited therefore scarcity. Multiples choices for allocation
Eg clothes vs car (households)
Hospital vs school ( nation)
Even free goods require resources to make them available on demand ( in quantities
and location wanted eg water/cold air)
Economic Decisions
1) What to produce ( goods + services)
2) How to produce these?
3) For whom are they produces? ( how to share)?
Aim : Maximize welfare or utility
There can be exchanges of goods with low utility ( due to abundance) to increase
overall utility if both parties benefit
Engineering efficiency ; Production of goods using as few recourses as possible,
leaving resources to be utilized elsewhere ie allowing more wants to be satisfied
Economic efficiency ; Engineering efficiency and production of goods or services
that most fully satisfy wants.
Marginal Analysis and opportunity cost
Economic efficiency : Choose resources allocation that yields highest welfare
It is impossible to consider every potential allocation. Consider one allocation and
determine how total utility changes as resources change.

1.4
Marginal benefit: gain for incremental change
Marginal cost: loss from change
If MB > MC -> increase in utility
Marginal analysis optimization technique by considering incremental changes
Since resources are limited these are called Constrained Maximization
problems.
Important : In marginal analysis dont consider total cost/benefit but MARGINAL
COST/BENEFIT for the increments only this leads to optimizations
Opportunity cost : BEST alternative forgone

1.5
Different Economic Systems : to solve scarcity
choice problems
Traditional economies ;
-

Customs + habits
Resources allocation for basic needs
Self sufficient at low standard of living
Minimal outside trading
Heavy reliance on nature weather effects resources -> standard of life
Output distributed by birthright and social factors
Eg Rural societies
Eg Households -> still social/gender specific tasks

Command Economic Systems

-

Production is decide by central ruling body

Often 5 years plan detailing what to produce + what to mit
Government action for low income earner

Capitalist system (market)

-

Still rely on government for collective action of common goods

Resource ownership
-

Capitalist -> Individual or private group

Command -> state
Traditional -> both

Also change through time;

Feudal -> labor party ( command) -> Capitalist market

1.6 Production Possibility Curve: Production

Frontier
Max production possibilities when all resources used in engineering efficient way x,
Z reduced production due to inefficiencies , therefore less wants satisfied
( <- unrelated goods)
Marginal Analysis will decide if X or Y is optimal. If diff in x gives more value than
diff in then this will be preferred.
W: would be preferred but there are insufficient resources.
Sacrificing of present consumption for future consumption.
Related goods.
In period 1 some butter B is scarified to produce machinery. With extra machinery
an increase in production frontier is seen in period 2 DD.
If no machinery is built in period 1 , A, this would lead to decrease in frontier in
period 2 CC due to breakdown of current equipment.
No Module 2.