Chapter 1 Econ 101

Microeconomics
Chapter 1
Introduction to Economics
Prof. Dr. Fathy El-Tony
1
Microeconomics, Ch. 1
2
Food for Thought
● What is the Economy?
Microeconomics, Ch. 1 3
Goods versus Services
4
What is “The Economy”?
● It is a system which provides people
with the means to work and earn
for living.
● It focuses on a region, a particular area
or country, concerning production,
distribution, consumption, and supply
of money.
What Are the Functions of an “Economy”?
Economy
Capital
Production Consumption
Accumulation
The Economy is the practical application of
Economics, and Economics is the theoretical study
of the Economy.
But, why do we study Economics?
Scarcity of resources means that people’s want for goods
and services (demand) exceed what is available for them
(supply).
So, Why do we study Economics?
● Economics is the study of how a
society can make decisions in the
face of scarce resources/ scarcity,
which have alternative uses, to
obtain maximum satisfaction, and
to distribute them among different
groups of people.
Examples
● A personal issue: Monthly income?
● A business problem: Size of my

factory, 1000 T-shirt, or 10000?
● National issue: Annual

Salary increase, Privatization
● 3 big questions.
What is Economics? Cont.
● Economics can be seen as the study of
how we can best increase a nation's
wealth with the resources that we have
available to us. (100 M Inhb. 8 M
Hectare)
● These can be decisions of individuals,

families, households, firms, businesses
or societal/governmental decisions.
What Do We Mean by “Resources” in Economics?
● Resources are the inputs that

are necessary to produce the
goods and services that we
use but they exist in limited
supply.
Ex. Labor, Land, Money,
Entrepreneurship
But, what do we mean by “Goods and Services”?
● Food
● Education
What do we mean by “Goods and Services”?
Cont.
● Goods are items that are usually tangible, such as: pens, salt,
apples, cars, greens and clothes.
● Services are intangible activities include – but not limited to-

banking, education, health care, insurance, public utilities, … etc.
Factors of Production
In Economics, we call Resources

“Factors of Production –FoP”.
Choice and Opportunity Cost
Opportunity Cost
● Opportunity cost is the forgone benefit that would have been
derived by an option not chosen.
○ Ex. You have 1 M LE (Deposit at the Bank @10% OR invest in a Microbus)
○ 10000 Sq. Of Land ????????????
○ Government Budget????????????
● To properly evaluate opportunity costs, the costs and benefits of

every option available must be considered and weighed against
the others.
Trade-Off
● A trade-off is commonly expressed in terms of the opportunity cost of
one potential choice, which is the loss of the best available alternative.
● A tradeoff involves a sacrifice that must be made to obtain a certain
product, service or experience, rather than others that could be made or
obtained using the same required resources.
● For example, for a person going to a basketball game, their opportunity
cost is the loss of the alternative of watching a particular television
program at home. If the basketball game occurs during her or his working
hours, then the opportunity cost would be several hours of lost work, as
she/he would need to take time off work.
Fundamentals of Microeconomics, Ch. 1 20
5-Minute Quizz
● Quizz (Kahoot)
Fundamentals of Microeconomics, Ch. 1 21

Division and Specialization of Labor
How do we “Utilize" our limited resources to obtain the goods and services we want?
There are 2 options:
Option 1: We could each produce

everything we each consume.
Option 2: We could each produce some

of what we want to consume, and “trade”
for the rest of what we want
Division of Labor (Skills)
Outsourcing
Division of Labor. Cont.,
The concept of division of labor means that the way one
produces a good or service is divided into a number of tasks
that different workers perform, instead of all the tasks being
done by the same person or worker.
Division of Labor. Cont.,
● Division of labor makes all of us more productive
● But, it also creates a challenge:

○ How do we coordinate all of our efforts so as to satisfy our
wants without wasting resources?
MICROECONOMICS vs. MACROECONOMICS
Microeconomics vs. Macroeconomics
Microeconomics Macroeconomics
Focuses on the actions and behavior of Focuses on broad issues such as growth
individual agents within the economy, of production, unemployed people, the
like households, suppliers of goods and inflation rate, or increase in prices,
services, workers, firms, and businesses. government deficits, and exports and
imports.
Looks at the individual components of the Looks at the economy as a whole.

economy
Households and Firms Interaction
5-Minute Video
Wrap Up
Review Team (5-10 Minutes)
● Instructions
● Review team is assigned to give a brief summary next class ( students are
grouped alphabetically)
Assignment 1
● Instructions
● For next class, follow the world news, and write a
reflection one event happening with a particular
focus on scarcity and opportunity cost.
Assignment 2
Case Study 1 (Handout)

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Microeconomics

● What is the Economy?

● A business problem: Size of my

● National issue: Annual

● These can be decisions of individuals,

● Resources are the inputs that

● Services are intangible activities include – but not limited to-

In Economics, we call Resources

● To properly evaluate opportunity costs, the costs and benefits of

Fundamentals of Microeconomics, Ch. 1 21

There are 2 options:

Option 1: We could each produce

Option 2: We could each produce some

● But, it also creates a challenge:

Looks at the individual components of the Looks at the economy as a whole.

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