introduction to econimics

7/31/2019 Introduction to Econimics

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What is Economics?

Economics is the study of how societies usescarce resources to produce valuablecommodities and distribute them among

different people Goods are scarce but wants are unlimited

Given unlimited wants, an economy shouldmake the best use of its limited resources


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Efficient Economy

An economy is producing efficientlywhen it cannot make anyoneeconomically better off without makingsomeone else worse off.

The essence of economics is toacknowledge the reality of scarcity and

then figure out how to organize societyin a way which produce the mostefficient use of resources.


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Importance of studying economics

Explores the behavior of the financial marketsinterest rates and stock prices

Examines the reasons why some people orcountries have high incomes while others arepoor

Studies business cyclesups and downs ofunemployment and inflation

Studies global trade and finance and theimportance of globalization

Looks at growth in developing countries and

purposes ways to encourage the efficient use ofresources

Asks how govt. policies can be used to pursueimportant goals


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Microeconomics Adam Smith, a great economist, is the

founder of microeconomics

This branch is concerned with the behavior

of individual entities such as markets,firms, households and even thegovernment.

Studies the determinations of prices ofland, labor and capital (these three arecalled factors of production)

Inquires about into the strengths andweaknesses of the market mechanism


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Macroeconomics

This is concerned with the overallperformance of the economy.

Macroeconomics examines variety ofareashow total investment andconsumption are determined, howcentral banks manage money andinterest rates, what causes financialcrisis, why some nations grow rapidlyetc.


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Tasks of Economists

Economists use the scientific approach tounderstand economic lifeobservingeconomic affairs.

Economics relies upon analyses andtheories

Economists developed a specializedtechniquesECONOMETRICS which

applies the tools of statistics to economicproblems to understand causality of manyeconomic problems


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Ultimate goal of Economics

The ultimate goal of economics is toimprove the living conditions ofpeople in their everyday lives.


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Three problems of Economicorganization

Whatcommodities are produced

Howthese goods are made

For whom they are produced


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Market, Command and the MixedEconomies

A market economy is one in whichindividuals and private firms make themajor decisions about production and

consumption. In the USA and increasinglyaround the world, most economic questionsare settled by the market mechanism.

The extreme case of a market economy, in

which the government keeps its hands offeconomic decisions, is called aLaissez-faire economy.


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Command Economies

A Command economyis one inwhich government makes allimportant decisions about productionand distribution. In short in acommand economy governmentanswers the major economic

questions through its ownership ofresources and its power to enforcedecisions.


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Mixed Economies

Mixed Economies with theelements of market and command.That is in this economic system mostdecisions are made in the marketplace. But government plays animportant role in overseeing the

functioning of the market. Mostsocieties today operate mixedeconomies.


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Positive vs Normative Economics

Positive economics describes the facts of aneconomy, while normative economicsinvolves value judgments.

Example of Positive economics: Why dodoctors earn more than engineers? Doesfree trade raise or lowers the wages?

Example of Normative economics: Should

something be happen type questions. Itdeals with ethical percepts and norms offairness.

introduction to econimics

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