BUSFF019

Elementary
Economics &
Mathematical Skills

2023-2024

1
FASS Foundation Programme

BUSFF019
Elementary Economics &
Mathematical Skills

Lecture 1
Basic Economic Problem

2
 Outline

1.1 Economic resources

1.2 Basic economic problem
1.3 Basic economic questions
1.4 Economic decision-making units
1.5 Public goods & private goods
1.6 Positive vs normative statements

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 Learning Objectives

 Identify categories of economic resources

 Explain the basic economic problem
 State the basic economic questions
 Describe the goals of economic agents
 Explain the characteristics of public goods
& private goods
 Distinguish between positive & normative
statements

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 Economic Resources

 Resources - inputs/factors of production used

to produce goods & services (objects that
people value & produce to satisfy wants)
 Four categories:

Land Capital

Labour Entrepreneurship

1.1 5
 Economic Resources (Cont’d)

(a) Land
- natural resources
- land area & raw materials

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 Economic Resources (Cont’d)

(b) Capital
- manufactured resources
- inputs into production that have
themselves been produced

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 Economic Resources (Cont’d)

(c) Labour
- work time & work efforts (physical &
mental) of human workforce
- limited number & skills

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 Economic Resources (Cont’d)

(d) Entrepreneurship
- the human resource that organises
land, capital & labour
- risk-taking element

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 Basic Economic Problem

 Human wants are virtually unlimited or

infinite
 The resources available to satisfy Scarcity
those wants are limited or scarce
 Gives rise to the basic economic problem –
resources have to be allocated between
competing uses
 Allocating resources between competing uses
involves making choices
 Economics - the study of how society choose
to allocate their scarce resources to provide
for their unlimited wants

1.2 10
 Choice & Opportunity Cost

 Because resources are scarce, choices

have to be made
 Every choice involves trade-off or sacrifice
 By deciding in favour of one action over
another - opportunity costs incurred
 Opportunity cost - the cost of any activity
measured in terms of the best alternative
forgone (NOT all alternatives foregone)

Quantity of goods you must give up

Quantity of goods you will get

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Opportunity Cost: What You Must Give Up

 Opportunity cost - the highest-valued

alternative that must be given up

Things you can’t

afford to buy
Things you can’t do
with your time

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Exercise 1
(a) In one day, Maggie can bake 500 cookies or 5
cakes. What is the opportunity cost per cookie
for Maggie?

(b) Agnes can produce either 1 unit of X or 1 unit

of Y in an hour, while Brenda can produce
either 2 units of X or 4 units of Y in an hour.
 What is the opportunity cost of
producing a unit of X for Agnes?
 What is the opportunity cost of producing a
unit of Y for Brenda?

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Exercise 2
You plan to go to school this summer. If you do,
you won’t be able to take your usual job that pays
£6,000 for the summer, and you won’t be able to
live at home for free. The cost of tuition is £2,000
and textbooks is £200, and living expenses are
£1,400.

What is the opportunity cost of going to summer

school?

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Exercise 3
People sometimes say that viewing a beautiful
sunset from the middle of the Sahara Desert
have no opportunity costs.

Do you agree?

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Past Test Question
2022-2023
State an opportunity cost:
(i) To a student of undertaking longer hours of
part-time work.
(ii) To a country of allocating more resources to
national defence.
(4 marks)

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 Basic Economic Questions

Economic choices can be summarised in 3 questions:

1. WHAT to produce?
- choice of mix of goods & services to produce

2. HOW to produce?
- choosing which factors of production to use
more of & which to use less

3. For WHOM to produce?

- distribution of goods & services to people

1.3 17
Source of data: CIA Factbook 2017, Central Intelligence Agency 18
 Economic Decision-Making Units

Consumers/ Producers/
Household Firms

Economic
agents

Factor owners Government

1.4 19
Economic Decision-Making Units (Cont’d)

(1) Consumers/Households
- buyer of goods & services
- economic goal?
To maximise __________________

(2) Producers/Firms
- buy productive resources from factor
owners & sell products to consumers
- economic goal?
To maximise __________

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Economic Decision-Making Units (Cont’d)

(3) Factor owners

- owners of factors of production
- earn income by selling the services of the factors of
production they own
- economic goal?
To maximise __________

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Economic Decision-Making Units (Cont’d)

(4) Government
- functions as a guide in economic activities
of country
- formulates/implements economic policies
- economic goal?
To maximise _______________

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Exercise 4

Identify the key terms/concepts associated with the

following:
(a) Labour, land, capital & entrepreneurship
(b) The organising, risk-taking, & innovative
resource
(c) Payment for the use of land
(d) The hours of human effort available for
production
(e) Entrepreneur’s reward
(f) Payments for labour services
(g) The excess of human wants over what can
actually be produced to fulfil these wants

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 Public Goods

 Produced by the government

 Two characteristics:
(i) non-rivalry
- consumption of good by one
person will not prevent others from
benefiting from it
(ii) non-excludability
- once provided, no one can be excluded
from benefiting from it
 Examples: national defence, flood-control
dams

1.5 24
 Private Goods

 A private good is both rival and excludable

 Examples: car, house, food & drink

• One person’s use of it

Rival decreases the quantity
available for someone else

• It is possible to prevent
Excludable someone from enjoying its
benefits

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 Positive vs Normative Statements

 Economists can help governments to

devise policy by examining the
consequences of alternative courses of
action.
 In doing this, it is important to
separate positive statements (what the
effects of the policies are) from
normative statements (what the goals
of policy should be)

1.6 26
 Positive Statements

Positive Statement: What is

 Statement of fact (value-free statement)
 May be right or wrong
 Its accuracy can be tested by checking it
against the facts
 Examples:
“Unemployment is rising”
“The percentage of the population fully
vaccinated in my country is over 70%”

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 Normative Statements

Normative Statement: What ought to be

 Statement of value (value judgement)
 Cannot be proved or disproved by a simple
appeal to the facts
 Examples:
“The government should lower the minimum
wage”
“The percentage of the population fully
vaccinated in my country is too low”

Good/ Desirable/
bad undesirable
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Exercise 5
Classify the following statements as positive (P) or
normative (N).
1. The inflation rate is greater this year than last
year.
2. UK’s rate of economic growth is greater than
Germany’s.
3. Students deserve to have free education.
4. The government should increase the
retirement age.
5. Higher union wages cause inflation.

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Exercise 5 (Cont’d)
6. On average, annual income is influenced
positively by education.
7. Malaysian workers should not have to
compete with cheap foreign labour.
8. Malaysia’s national income per capita is higher
than Singapore’s.
9. The value of the euro against other currencies
is much too low.
10. Luxuries should be taxed more heavily than
necessities.

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Exercise 5 (Cont’d)
11. It is unfair nurses are paid less than teachers.
12. Annual increase in old age pensions in the UK
is linked to the annual rate of inflation.
13. Instead of being linked to the rate of inflation,
annual increase in old age pensions ought to
be linked to the annual increase in UK average
earnings.
14. The tax on cigarettes and other tobacco
products should be increased and the extra
revenue raised by the government should be
spent on health care.

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Exercise 5 (Cont’d)
15. It would be a good idea if the government
increase the tax on cigarettes and other
tobacco products to limit the harmful effects
of smoking upon the nation’s health.

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Past Test Questions
2020-2021
Construct a positive statement and a normative
statement in relation to the price of hand
sanitizer. (4 marks)

2021-2022
Construct a positive statement and a normative
statement in relation to the distribution of Covid-
19 vaccine. (4 marks)
2022-2023
Construct a positive statement and a normative
statement in relation to the choice of residential
properties to be built. (4 marks)
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 Readings

Economics, Sloman, Garratt & Guest, 11th ed.

Chapter 1: Economics and Economies

Economics, Michael Parkin, 14th ed.

Chapter 1: What is Economics?

Principles of Economics, Case, Fair & Oster,

13th ed.
Chapter 2: The Economic Problem:
Scarcity and Choice

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Extra Exercises
Source:
http://cws.cengage.co.uk/mankiw_taylor2/students/stu_mcqs.htm
Economics, 2nd Edition, N. Gregory Mankiw & Mark P. Taylor
(Students’ Resources)

Chapter 1: Ten Principles of Economics

True/False
1 question: 2
Multiple Choice
5 questions: 16-18, 21 & 34

Chapter 2: Thinking Like an Economist

True/False
2 questions: 12 & 13
Multiple Choice
6 questions: 21, 31-35