01

ECONOMICS A 3-1 SUBJECT?

project date 20/09/2007

01

I want a full stomach!

I want a fur coat!

Let’s compromise…

The bear ate the man…they both got what they wanted.

Take the initiative

Fight the issue not the person

Take control of your day and life

Be decisive

Joshua 1:6-7,9

Source: JL Mason

01

GOALS

• Understand why economics is 1. Science2. Art3. Social science

• DifferentiateMicroeconomics vs.

MacroeconomicsPositive vs. Normative AnalysisTheories vs. Models

ECONOMICS is like…

Cork-can-bottle opener

Nescafe 3-1 coffee 3-in-1 printer, fax and photocopying

machine

SCIENCE

SOCIALSCIENCE

ARTS

• Economics uses SCIENTIFIC APPROACH OR METHOD in

studying economic events or phenomena

SCIENCE

“What a science (economics) does or should do is simply allow the average man to commandthe heights of a genius.” (James Buchanan)

• Uses scientific approach

• Experiments in laboratories

• Uses experimental data

• Uses statistics

• Uses scientific approach

• No experiments in laboratories; society is the laboratory

• uses real or actual data of people or non-experimental data

• Uses statistics

PHYSICAL SCIENCES ECONOMICS

ARTS

ECONOMICS AS AN ART?ECONOMICS AS AN ART?

• Art is a skill acquired by experience, discipline, study or observation

• Skill in applying economic tools or principles in real life situation

The business world could use all the art, all of the out-of-the-box thinking , all the innovative problem solving that it can find.

Creativity (art) can be integrated into every aspect of business…

SOCIALSCIENCE

ECONOMICS AS A SOCIAL ECONOMICS AS A SOCIAL SCIENCE?SCIENCE?

• It is a social science because it studies society or people in the economy

• It studies the economic behavior of man in the market

• Needed to change/improve society

MICMIC--MACMAC

MICROECONOMICS VS. MACROECONOMICS

Microscope

Telescope

WHAT’S THE DIFFERENCE?WHAT’S THE DIFFERENCE?

MICROECONOMICS MACROECONOMICS

I A

MMIIcroeconomics = croeconomics = IIndividual / ndividual / SpecificSpecific

Two major fields/divisions

1. Microeconomics = Parts, Trees

• About INDIVIDUAL economic units such as CONSUMER and FIRM, INDUSTRY,

• How they make decisions and how they interact in specific markets

• MARKET ECONOMICS

MMAAcroeconomics = croeconomics = AAggregate, ggregate, AAll , Generalll , General

2. Macroeconomics = Whole, Forest

• Studies how the economy behaves as a whole

• Country’s output, general price level, national income and employment and unemployment,

balance of payments and exchange rates

• NATIONAL ECONOMICS

MicroMicro vs vs MacroMacro

• An individual or a family decides to buy a laptop

• A firm’s production of a good

• The price of notebook, pen, etc

• All consumers’ demands for all goods

• Total production of goods of all firms

• The general price of all goods and services

3 IN 1 Science, Social Science and Art

TWO MAJOR FIELDS

Microeconomics

Macroeconomics

TWO TYPES OF ANALYSES / STATEMENTS

Positive

Normative

RED APPLE OR RED APPLE OR GREEN APPLEGREEN APPLE

POSITIVE ANALYSIS

NORMATIVE ANALYSIS

POSITIVE ANALYSIS

NORMATIVE ANALYSIS

ECONOMIST AS A SCIENTISTECONOMIST AS A SCIENTIST

• Uses POSITIVE ANALYSIS

• Uses facts and determines cause-and-effect relationships

• Develops and tests theory

• Does not use personal value judgment

• Can be proven/rejected

• Answers the basic question – WHAT IS

ECONOMIST AS POLICYMAKERECONOMIST AS POLICYMAKER

• Uses NORMATIVE ANALYSIS

Incorporates value judgment about the economy

• Recommends/prescribes policy actions to achieve desired economic change or goal

• Makes claim about how the economy OUGHT TO BE

POSITIVEPOSITIVE vs. vs. NORMATIVENORMATIVE

• WHAT IS?• Describes using facts

and numbers• Cause and effect

relationship• Uses scientific

analysis

• WHAT OUGHT TO BE?

• Prescribes or recommends policies

• Incorporates value judgment

Statement of facts Statement of values

POSITIVEPOSITIVE vs. vs. NORMATIVENORMATIVEStatement of facts Statement of values

POSITIVEPOSITIVE vs. vs. NORMATIVENORMATIVE

• WHAT IS?

• The economy has grown by 4.7% in 2008. Last year’s growth was recorded at 7.3%.

• WHAT OUGHT TO BE?

• Economic growth should be continuing and consistent so that poverty will be eliminated!

POSITIVEPOSITIVE vs. vs. NORMATIVENORMATIVE

• WHAT IS?

• The current bank lending interest rate is noted at 9.7% in 2006 from 10.2% last year.

• WHAT OUGHT TO BE?

• Interest rate ought to be low to stimulate business and investment in the country

MICROECONOMICS

MACROECONOMICS

2 Branches/ Fields 2 Types of Analyses

Positive“What is, was,

will be”

Normative“What ought

to be?”

SCIENCE

SOCIAL SCIENCE

ART“Applied

Economics”

3-1 Discipline

1-2-31-2-3

HYPOTHESIS

THEORY

LAWS OR PRINCIPLES

Statement that needs to be tested/proven

As hypothesis is proven true, it evolves into a theory

A well tested and accepted theory becomes a law or principle

THEORIESTHEORIES vs. vs. MODELMODEL

• STATEMENTS about economic behavior that enable the prediction of the probable effects of certain actions

• FORMAL STATEMENT OF A THEORY usually in the form of

• mathematical equation

• diagram or graph

THEORIESTHEORIES vs. vs. MODELMODEL

• Law of Demand states that as price of the good increases, quantity demanded falls, ceteris paribus (all else equal)

• Qd = 10 - 2P

D

P

Qd

DIVERSE FIELDS OF DIVERSE FIELDS OF ECONOMICSECONOMICS

• Urban and regional economics• Econometrics• Economic Development• Labor Economics• International Economics• Public Economics• Economic History• Many more

QUALITIES NEEDED TO QUALITIES NEEDED TO STUDY ECONOMICSSTUDY ECONOMICS

• Analytical and logical and desiring to learn just like a philosopher

QUALITIES NEEDED TO QUALITIES NEEDED TO STUDY ECONOMICSSTUDY ECONOMICS

• Can work with some numbers just like a mathematician

QUALITIES NEEDED TO QUALITIES NEEDED TO STUDY ECONOMICSSTUDY ECONOMICS

• Interest in research and knowledgeable with past and current issues just like an historian

QUALITIES NEEDED TO QUALITIES NEEDED TO STUDY ECONOMICSSTUDY ECONOMICS

• Considerate of the welfare of the people just like a statesman

Group exercise

3 ounce 5 ounce 8 ounce

The largest glass is full. What can you do to get 4 ounces of liquid into each of the larger two glasses?

LET US APPLY WHAT WE LET US APPLY WHAT WE HAVE LEARNED!HAVE LEARNED!