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Business Economics-I
Topics
Economic Activity Economy Definitions of Economics Types of Economics Problems of Economy Factors of Production Economic Systems
ECONOMIC ACTIVITY
Any activity which is performed by the sake of reward or compensation. For example: Health services Education services Production trading
ECONOMY
Economy is a place where people perform economic activities.
SECTORS IN AN ECONOMY
Industrial sector
Mining
Agricultural sector
Service sector
What is Economics?
Definition
Economics is the science of wealth.
By: Adam Smith
Wealth means:
GOODS
SERVICES
Process of wealth
Production of Wealth (1)
Definition of Economics
Economics is the science which studies human behavior as a relationship between Unlimited wants and Scarce Resources which have alternative uses.
By: Prof. Robins
Study Of Economics
Resources Limited
Wants Unlimited
Satisfaction (5)
Reward (3)
TYPES OF ECONOMICS
MICRO ECONOMICS MACRO ECONOMICS
MICRO ECONOMICS
Micro means a Millionth part of a thing.
Micro Economics studies the behavior of the following: individuals, firms households or; specific Markets.
Prepared by: Sameer Khan
MACRO ECONOMICS
Macro word has been derived from a Greek word MACROS, which means Large. Macro Economics focuses on the whole economy.
In this part of Economics we study the aggregates of an economy with a view to focusing on the economy as a whole.
Prepared by: Sameer Khan
Examples:
If we talk about the demand of LUX, this is called Micro aspect but if we talk about the Aggregate demand of all types of soaps this is called Macro Aspect. If we analyze about the problems of Sugar industry of Pakistan, this is called Micro aspect but if we talk about the problems of all industries in Pakistan this is called Macro Aspect
Examples:
If we analyze about the problems of Industries of Pakistan and compare them with the Problems of all over the Industries in the World, then analysis of problems of Pakistani Industries is called Micro aspect but The comparison of them with the problems of all industries in the World, this is called Macro Aspect of the study of Economics.
Description
Demand
Supply
Income
Expenditure
Individual
Individual
National
Aggregate
Description
Micro Economics
Macro Economics
Prices
Fiscal & Monetary policy Savings Consumption Investment
FACTORS OF PRODUCTION
LAND LABOUR CAPITAL ORGANIZATION
FACTORS OF PRODUCTION
Land means all natural resources such as soil, sea,
plane area, forest, mountains etc.
FACTORS OF PRODUCTION
Capital means all man made resources which
are used for the production of Goods & Services. e.g. Machines, Plants, Building etc.
Characteristics of Land
Free Gift of Nature Mobility of land impossible Supply is fixed. Different Characteristics.
Characteristics of Labor
Un identical labor Active factor of production. Labor can not be stored . Mobility of labor is possible Supply of labor is inelastic (Japan Population) Inverse correlation between supply of labor and wage rate Education plays important role.
Characteristics of Capital
Mobility can be possible. Supply is limited. It is a passive factor of production. It depreciates its worth. (Zimbabwe/ Germany) Its supply is elastic.
Characteristics of Organization
Planning of Business. Responsibility of applying suitable combination of factors of Production. Enterprising Qualities (Faces Risk) Responsible for Profit & Loss. Responsibility for distribution of Reward among factors of Production.
Comparison between Factors of Production Description Mobility Land Labor Capital Organization
Not possible possible Rent Limited wages Limited possible interest Limited possible profit Limited
Reward
Supply
What to Produce?
The first problem of economy is that what goods & services are produced and in what quantity? A society must determine how much of each of the many possible goods and services it will make and when they will be produced. Will we produce Consumer goods or Capital goods?
Consumer Goods are used by ultimate customers
means households. e. g Shoes, Shirts, Pizza, Mobile etc Capital Goods are used by Manufactures e.g. Machines, Plants etc
Prepared by: Sameer Khan
How to Produce?
A society must determine: How the goods and services are to be produced or, what technique is to be applied for that purpose? Will Factory be run by People or automatic Machines? Will Industry be Labor Intensive or Capital Intensive?
Prepared by: Sameer Khan
Capital Intensive Industry means An industry in which Capital is applied more than FOP. E.g. Automobile Industry
Labor Intensive industry means an industry in which Labor involvement is more than other factors of Production.
E.g. A factory where shirts are stitched.
Prepared by: Sameer Khan
ECONOMIC SYSTEMS
CAPITALISM
SOCIALISM
ISLAMIC ECONOMIC SYSTEM MIXED ECONOMY
Prepared by: Sameer Khan
CAPITALISM
The sole philosophy of capitalist economy is Economic freedom of the making. Under this doctrine the people are allowed freedom regarding Production, exchange, distribution & consumption of goods and service.
CAPITALISM
The people are allowed to indulge in their economic activities in accordance with their choice. Government does not unreasonably interfere with the economic activities of the people.
SOCIALISM
The term "socialism" was first used in the context of early-19th century Western European social critics. In this period, socialism emerged from a diverse array of doctrines and social experiments associated primarily with British and French thinkers
Prepared by: Sameer Khan
SOCIALISM
Socialism is a class of ideologies favoring a socio-economic system in which property and the distribution of wealth are subject to social control. As an economic system, socialism is associated with collective ownership of the means of production.
Prepared by: Sameer Khan
SOCIALISM
The modern socialist movement had its origin largely in the working class movement of the late-19th century. In this period, the term "socialism" was first used in connection with European social critics who condemned capitalism and private property.
For Karl Marx, who helped establish and define the modern socialist movement.
Prepared by: Sameer Khan
Mixed Economy
This system provides a combination of both the capitalist and socialist system of economy.
Descriptions
Right of Private Property.
Freedom of enterprise.
allowed
allowed
Not allowed
Not allowed
May be allowed
May be allowed
allowed
allowed
Exists yes
exists Yes but up to some extent Market forces plus Govt. intervention
Exists
Descriptions
Capitalism
Socialism Mixed
Motive.
Earn Maximum
Freedom of Choice
allowed
Not allowed
Allowed
Role of Government
Major Role
Factors of Production
Land, Labor
Descriptions
Halal & Haram
Capitalism
Socialism
No distinction
Savings
Unlimited
Unlimited
Moderate