Lesson 01 # Nature & Scope of Economics

Question 1

What is Economics?

Answer 1

Economics refers to make choice efficiently in the presence of scarcity.

Question 2

The words economics derived from?

Answer 2

Economics originated from Greek work “Oikionomia” which means household management.​

Question 3

Define key terms of economics

Answer 3

Economy: It refers to the area where we live & earn, e.g. Pakistan.​
Economical: Anything that is cheap & affordable.​
Economic: There are two motives for any work means Social Welfare-to serve people for free or Economic (to work for money) means money related.​
Economics: Many definitions given by economists on this subject.​
Econometrics: A subject which includes Math & Stats.​
Economist: A person who is master in Economics.​

Question 4

Define Business Economics

Answer 4

The use of economic analysis to make business decisions involving the best use of an organization’s scarce resources.​

Question 5

Write definition of economics by four famous economists

Answer 5

DEFINITIONS OF ECONOMICS BY FOUR ECONOMISTS:​
Economics is a science of wealth (Adam Smith).​
Economics is a science of material welfare (Marshall).​
Economics is science of scarcity & choice (Robbins). ​
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people. (Samuelson).​

Question 6

Three facts derived from every definition of Economics, that are?

Answer 6

​Resources are scarce/limited.​
Wants and needs are unlimited. ​
We have to make choice.​

Question 7

What is Scarcity?

Answer 7

A situation of scarcity is one in which goods are limited relative to desires.​

Question 8

What is Efficiency?

Answer 8

Efficiency denotes the most effective use of a society’s resources in satisfying people’s wants and needs.​

Question 9

What are scarce goods?

Answer 9

A scarce goods is a goods for which the choice of one alternative requires ​
that another should be given up.​

Question 10

TYPES OF SCARCITY?

Answer 10

Demand Induced refers to rising demand when supply remains the same.​
Supply Induced refers to over-consumptions of resources.​
Structural refers to reduced supply due to economic or environmental reasons, Government intervention and so on leads to scarcity.​
Absolute Scarcity refers to the physical limitation of resources.​
Relative Scarcity refers to the value we place on resources.​

Question 11

Difference between scarcity & choice?

Answer 11

Scarcity refers to the limited availability of resources, while choice is the decision-making process in allocating those limited resources.

Question 12

Economics is science or an art?

Answer 12

Economics is a science because it uses systematic methods to study resource allocation and an art because it requires skillful application of these methods to address complex real-world issues.

Question 13

Scope of Economics?

Answer 13

1. Applied Economics: Utilizes economic principles to solve real-world problems.
2. Descriptive Economics: Describes and gathers data about economic phenomena.
3. Economic Theory: Develops models to explain and predict economic behavior.

Question 14

Contributions of four economists?

Answer 14

1. Adam Smith: Introduced the concept of the invisible hand.
2. Alfred Marshall: Developed the supply and demand price mechanism.
3. Lionel Charles Robbins: Defined economics as the study of scarcity.
4. John Maynard Keynes: Advocated for government intervention in economic cycles.

Question 15

Conflicts between definitions of four economists?

Answer 15

1. Adam Smith: Emphasized self-interest drives economic prosperity.
2. Alfred Marshall: Stressed equilibrium through supply and demand.
3. Lionel Charles Robbins: Focused on scarcity and choice in economics.
4. John Maynard Keynes: Highlighted government’s role in managing demand.

Question 16

Positive VS Normative Economics?

Answer 16

Positive economics describes what is, while normative economics prescribes what ought to be.

Question 17

Business Economics is Normative or Positive Economics?

Answer 17

Business economics is a normative science which is interdisciplinary/multidisciplinary and pragmatic(practical) in approach.​

Question 18

Types of Business Economics?

Answer 18

There are two categories of business issues to which economic theories can be directly applied, namely:​
Microeconomics applied to operational / internal issues.​
Macroeconomics applied to environmental / external issues.​

Question 19

What is Microeconomics with Example?

Answer 19

MICROECONOMICS:​
The branch of economics which today is concerned with the study of individual unit of economy.​
Example: Market, Firms and Household etc.​

Question 20

What is Macroeconomics with Example?

Answer 20

MACROECONOMICS:​
The branch of economics which is concerned with the study of aggregate economy as a whole.​
Example: Total investment and consumption of an economy, Money and Interest Rates, Financial Crises, Economic Growth of Nations and so on.​

Question 21

Micro VS Macro?

Answer 21

Microeconomics studies individual markets, while macroeconomics examines the overall economy.

Question 22

What is Factor of Production with example?

Answer 22

Factors Of Production is an economic term that describes the inputs used in the production of goods or services to make an economic profit. ​ OR…
These include any resource needed for the creation of a good or services. ​
The factors of production are:​ Land, Labor, Capital or Entrepreneur.

Question 23

Define 4 factors of production.

Answer 23

1. Land: Natural resources used in production, like minerals.
2. Labor: Human effort in production, like factory workers.
3. Capital: Man-made resources aiding production, like machinery.
4. Entrepreneur: Innovator organizing resources, like a startup founder.

Question 24

Tell rewards or risks associated with each factor of production>

Answer 24

1. Land: Earns rent; No risk predetermined.
2. Labor: Earns wages; No risk predetermined.
3. Capital: Earns interest; No risk predetermined.
4. Entrepreneur: Earns profit; risks predetermined means maybe profit or loss.

Question 25

Three major economic problems?

Answer 25

1. What To Produce & In What Quantity?​
2. How To Produce & Where To Produce?​
3. For Whom To Produce & To Distribute?​

Question 26

Four major economic system?

Answer 26

1. The Free Market /Free Enterprise / Capitalist Economic System.​
2. The Planned / Command / Socialist Economic System.​
3. The Mixed Economic System.​
4. Islamic Economic System.

Question 27

Define each economic system with example

Answer 27

1. Free Market: Market-driven economy with private ownership, like the USA.
2. Planned Economy: Government-controlled economy with state ownership, like North Korea.
3. Mixed Economy: Combines private and public sectors, like Sweden.
4. Islamic Economy: Sharia-compliant system prohibiting interest, like Saudi Arabia.

Question 28

Basic economic school of thoughts?

Answer 28

1. Classical School Of Thoughts​
2. New Classical School Of Thoughts​
3. Modern School Of Thoughts​

Question 29

Tell about each economic school of thoughts

Answer 29

1. Classical School of Thought: Emphasizes market self-regulation and minimal government intervention, like Adam Smith.
2. New Classical School of Thought: Focuses on rational expectations and market efficiency, like Robert Lucas.
3. Modern School of Thought: Integrates behavioral economics and complex systems analysis, like Paul Samuelson.

Question 30

What is PPF / PPC?

Answer 30

The PPF (Production Possibility Frontier) or PPC (Production Possibility Curve) illustrates the maximum output combinations of two goods an economy can produce with given resources and technology.

Question 31

Public VS Private Goods?

Answer 31

Public goods are available to all without depletion (non-rivalrous) and exclusion (non-excludable); private goods are limited to individual use (rivalrous) and can exclude non-payers (excludable).

Question 32

Consumption VS Capital Goods?

Answer 32

Consumption goods are used for immediate satisfaction, while capital goods are used for production of other goods.

Question 33

Define Opportunity Cost with example

Answer 33

Opportunity cost is the value of the next best alternative foregone, like choosing to invest in stocks instead of bonds.