Post on 20-Aug-2015
Science of wealth, ii) Science of welfare, iii) Science of scarcity, iv) Science of growth and development
Economics is
DefinitionThe study of how people satisfy their unlimited wants and needs with limited resources people have to make choices
Types Of EconomicsMicro(individual consumers and firms)
Macro (Aggregates- Industry, not firm)
B. Positive factual statements-“What is” Normative (Value judgments- “What ought to be”)
Wants vs. Needs:Wants are anything other than what is needed for basic survival
New car, video games, or a stereo system
Needs are things required for basic survival
Food, clothing, and shelter
Economicso The study that how to allocate limited resources and how to satisfy unlimited
demands.
Demando Willing to buy something o & Power to buy
Goodso Goods are tangible objects that satisfy people’s wants or needso Ex. Clothes, food, cars, etc.
Services o are actions that can satisfy people’s wants or needso Ex. Seeing a doctor, watching a baseball game, getting my oil changed
Classification Of Economics
economics
Theoretical
economics
Positive
economics
Normative
Economics
Applied
economics
Macro
economics
Micro
Economics
Microeconomicso Centres on the forces working at the individual level (e.g.
individual firms and consumers)o Focuses on the needs, desires and buying habits of the
individual consumero An example: studying how firms react to increasing costs of
production by raising the price and subsequently how consumer/household spending is adjusted when the price rises
o Supply, Demand and Marketso Price theory o Behavior of the firmo Theory of the distribution of the wealth
Macroeconomicso The sum total of all micro partso Looks at the aggregate (sum or total) of individual marketso The four main areas of study
(1) Growth (increase in total output) Business fluctuation
(2) Price level (inflation) Money & banking
(3) Labour Markets (unemployment) National income & employment
(4) The balance in the foreign sector exports/imports, exchange rates
Micro vs. Macro
MICRO MACRO
o Firm’s reaction to increased demand for its product
o Decision of a worker to work less due to lower wages
o The effects on an industry (group of firms producing similar goods) due to higher labour taxes
o Government legislation aimed at monopolies
o Studying the effects on all firms in the economy due to a general increase in demand
o Total hours of labour (and unemployment)
o Effect on total production in the economy due to taxes
o Government legislation aimed at increasing taxes on profits for all firms
Positive Economicso Study of how economy workso Statements about how the economy works are positive
statements, whether they are true or noto Accuracy of positive statements can be tested by looking
at the facts—and just the facts
Normative Economicso Used to make value judgments, identify problems, and
prescribe solutionso Statements that suggest what we should do about
economic facts, are normative statementso Based on valueso Normative statements cannot be proved or disproved by
the facts alone
The Scope of EconomicsEXAMPLES OF MICROECONOMIC & MACROECONOMIC CONCERNS
Microeconomics
Production
Production/Output inIndividual Industries andBusinesses
How much steelHow many officesHow many cars
Prices
Price of IndividualGoods and Services
Price of medical carePrice of gasolineFood pricesApartment rents
Income
Distribution of Incomeand Wealth
Wages in the auto industryMinimum wagesExecutive salariesPoverty
Employment
Employment byIndividual Businesses &Industries
Jobs in the steel industryNumber of employees in a firmNumber of accountants
Macroeconomics
NationalProduction/Output
Total Industrial OutputGross Domestic ProductGrowth of Output
Aggregate Price Level
Consumer pricesProducer PricesRate of Inflation
National Income
Total wages and salariesTotal corporate profits
Employment andUnemployment in theEconomy
Total number of jobsUnemployment rate
Factors of Production
Land labor capital & entrepreneur are the resources that businesses use to produce goods and services.
Factor of productiono Resources used to produce goods and services- land,
labour, capital, and entrepreneurshipo Land: natural resources and surface land and watero Land, water, fish, animals, forests, mineral deposits
laborLabour: the work people do-human effort both physical and mental
results in economic goods and services
Goods are tangible objects that satisfy people’s wants or needs
Services are actions that can satisfy people’s wants or needs
Capital & Entrepreneurshipo Capital: manufactured goods used to make other goods and
services o Ex. Machines, buildings, and tools used to assemble
automobileso Capital increases productivity- the amount of output that
results from a given level of inputso Entrepreneurship: the ability to start a new business or create
new productso About 30% of new business enterprises failo Of the 70% that survive, only a few become successfulo
Income of production factors
Land earns rent.
Labour earns wages.
Capital earns interest.
Entrepreneurship earns profit.
5th factor of production
Technology: (sometimes considered the 5th F.O.P) the use of science to develop new products and production needs
Resourceso Resources are used to produce goods and services.o Producers of goods and services are influenced by natural,
human, and capital resources.o Natural resources: Materials that come from nature (water, soil,
wood, coal)o Human resources: People working to produce goods and
serviceso Capital resources: Goods made by people and used to produce
other goods and services (machines, tools, buildings)o Producers: People who use resources to make goods and/or
provide services
Economics choice & opportunity cost
Economic choice: The choice of or decision among alternatives or possibilitiesOpportunity cost: The next best choice that is given up when a decision is made