1. Oppurtunity Cost
• What is Opportunity Cost?
• Opportunity cost is the profit lost when one alternative is selected over
another. The concept is useful simply as a reminder to examine all
reasonable alternatives before making a decision. For example, you have
$1,000,000 and choose to invest it in a product line that will generate a
return of 5%. If you could have spent the money on a different investment
that would have generated a return of 7%, then the 2% difference between
the two alternatives is the foregone opportunity cost of this decision.
• Opportunity cost does not necessarily involve money. It can also refer to
alternative uses of time. For example, do you spend 20 hours learning a
new skill, or 20 hours reading a book?
3. • A production possibilities curve in economics measures the
maximum output of two goods using a fixed amount of input.
The input is any combination of the four factors of production:
natural resources (including land), labor, capital goods, and
entrepreneurship.
• The production possibilities curve measures the trade-off
between producing one good versus another.
• In economics, the production possibilities curve is a
visualization that demonstrates the most efficient production of
a pair of goods. Each point on the curve shows how much of
each good will be produced when resources shift to making
Production Possibility Curve
5. Examples of the Production Possibilities
Curve
• For example, say an economy produces 20,000 oranges and
120,000 apples. On the chart, that's point B. If it wants to
produce more oranges, it must produce fewer apples. On the
chart, Point C shows that if it produces 45,000 oranges, it can
only produce 85,000 apples.
• By describing this trade-off, the curve demonstrates the concept
of opportunity cost. Making more of one good will cost society
the opportunity of making more of the other good.
6. Types of Economics
• Two major types of economics are microeconomics, which
focuses on the behavior of individual consumers and producers,
and macroeconomics, which examines overall economies on a
regional, national, or international scale.
7. Types of Economics
• Microeconomics focuses on how individual consumers and
firms make decisions; these individual decision-making units
can be a single person, a household, a business/organization,
or a government agency. Analyzing certain aspects of human
behavior, microeconomics tries to explain how they respond to
changes in price and why they demand what they do at
particular price levels.
• Microeconomics tries to explain how and why different goods
are valued differently, how individuals make financial decisions,
and how individuals best trade, coordinate, and cooperate with
one another.
8. Types of Economics
• Microeconomics' topics range from the dynamics of supply and
demand to the efficiency and costs associated with producing
goods and services; they also include how labor is divided and
allocated; how business firms are organized and function; and
how people approach uncertainty, risk, and strategic game
theory.
9. Types of Economics
• Macroeconomics studies an overall economy on both a national
and international level, using highly aggregated economic data
and variables to model the economy. Its focus can include a
distinct geographical region, a country, a continent, or even the
whole world. Its primary areas of study are recurrent economic
cycles and broad economic growth and development.
• Topics studied include foreign trade, government fiscal and
monetary policy, unemployment rates, the level of inflation and
interest rates, the growth of total production output as reflected
by changes in the Gross Domestic Product (GDP) and business
cycles that result in expansions, booms, recessions, and
depressions.
10. Demand and Supply
• demand is the quantity of a good that consumers are willing
and able to purchase at various prices during a given period of
time.
• supply is the amount of a resource
that firms, producers, labourers, providers of financial assets, or
other economic agents are willing and able to provide to
the marketplace or to an individual. Supply can be in produced
goods, labour time, raw materials, or any other scarce or
valuable object
11. Law of Demand and Supply
• The law of supply and demand is a theory that explains the
interaction between the sellers of a resource and the buyers for
that resource. The theory defines the relationship between the
price of a given good or product and the willingness of people to
either buy or sell it. Generally, as price increases, people are
willing to supply more and demand less and vice versa when
the price falls.
12. Factors that affect demand and supply
. Tastes and Preferences of the Consumers:
• Incomes of the People
• Changes in the Prices of the Related Goods
• The Number of Consumers in the Market
13. Determinants of supply
• Aside from prices, other determinants of supply are resource
prices, technology, taxes and subsidies, prices of other goods,
price expectations, and the number of sellers in the market.
Supply determinants other than price can cause shifts in the
supply curve. Those that cause a decrease in the supply shifts
the supply curve leftward, meaning that suppliers will supply
less at every price point on the supply curve, while increases in
supply caused by non-price supply determinants shift the supply
curve rightward, where suppliers will supply more at every
price.
14. Elasticity
• Elasticity is an economic concept used to measure the change
in the aggregate quantity demanded of a good or service in
relation to price movements of that good or service.
• A product is considered to be elastic if the quantity demand of
the product changes more than proportionally when its price
increases or decreases.
• Conversely, a product is considered to be inelastic if the
quantity demand of the product changes very little when its
price fluctuates.
15. Elasticity
• For example, insulin is a product that is highly inelastic. For
people with diabetes who need insulin, the demand is so great
that price increases have very little effect on the quantity
demanded. Price decreases also do not affect the quantity
demanded; most of those who need insulin aren't holding out
for a lower price and are already making purchases.
16. Types of Elasticity
• Elasticity of Demand
• The quantity demanded of a good or service depends on
multiple factors, such as price, income, and preference.
Whenever there is a change in these variables, it causes a
change in the quantity demanded of the good or service.
• Price elasticity of demand is an economic measure of the
sensitivity of demand relative to a change in price. The measure
of the change in the quantity demanded due to the change in
the price of a good or service is known as price elasticity of
demand.
17. Types of Elasticity
• Income Elasticity of demand: refers to the sensitivity of the
quantity demanded for a certain good to a change in of
consumers who buy this good, keeping all other things
constant. The formula for calculating income elasticity of
demand is the percent change in quantity demanded divided by
the percent change in income. With income elasticity of
demand, you can tell if a particular good represents a necessity
or a luxury.
18. Types of Elasticity
• The Cross Elasticity of demand: is an economic concept that
measures the responsiveness in the quantity demanded of one
good when the price for another good changes. Also called
cross-price elasticity of demand, this measurement is calculated
by taking the percentage change in the quantity demanded of
one good and dividing it by the percentage change in the price
of the other good.
19. Types of Elasticity
• Price Elasticity of Supply
measures the responsiveness to the supply of a good or service
after a change in its market price. According to basic economic
theory, the supply of a good will increase when its price rises.
Conversely, the supply of a good will decrease when its price
decreases.