3 1 economics 1 st term 2011
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01
ECONOMICS A 3-1 SUBJECT?
project date 20/09/2007
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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.
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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
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01
GOALS
• Understand why economics is 1. Science2. Art3. Social science
• DifferentiateMicroeconomics vs.
MacroeconomicsPositive vs. Normative AnalysisTheories vs. Models
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ECONOMICS is like…
Cork-can-bottle opener
Nescafe 3-1 coffee 3-in-1 printer, fax and photocopying
machine
SCIENCE
SOCIALSCIENCE
ARTS
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• 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)
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• 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
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ARTS
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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
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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…
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SOCIALSCIENCE
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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
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MICMIC--MACMAC
MICROECONOMICS VS. MACROECONOMICS
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Microscope
Telescope
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WHAT’S THE DIFFERENCE?WHAT’S THE DIFFERENCE?
MICROECONOMICS MACROECONOMICS
I A
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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
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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
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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
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3 IN 1 Science, Social Science and Art
TWO MAJOR FIELDS
Microeconomics
Macroeconomics
TWO TYPES OF ANALYSES / STATEMENTS
Positive
Normative
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RED APPLE OR RED APPLE OR GREEN APPLEGREEN APPLE
POSITIVE ANALYSIS
NORMATIVE ANALYSIS
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POSITIVE ANALYSIS
NORMATIVE ANALYSIS
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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
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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
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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
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POSITIVEPOSITIVE vs. vs. NORMATIVENORMATIVEStatement of facts Statement of values
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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!
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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
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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
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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
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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
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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
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DIVERSE FIELDS OF DIVERSE FIELDS OF ECONOMICSECONOMICS
• Urban and regional economics• Econometrics• Economic Development• Labor Economics• International Economics• Public Economics• Economic History• Many more
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QUALITIES NEEDED TO QUALITIES NEEDED TO STUDY ECONOMICSSTUDY ECONOMICS
• Analytical and logical and desiring to learn just like a philosopher
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QUALITIES NEEDED TO QUALITIES NEEDED TO STUDY ECONOMICSSTUDY ECONOMICS
• Can work with some numbers just like a mathematician
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QUALITIES NEEDED TO QUALITIES NEEDED TO STUDY ECONOMICSSTUDY ECONOMICS
• Interest in research and knowledgeable with past and current issues just like an historian
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QUALITIES NEEDED TO QUALITIES NEEDED TO STUDY ECONOMICSSTUDY ECONOMICS
• Considerate of the welfare of the people just like a statesman
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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?
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LET US APPLY WHAT WE LET US APPLY WHAT WE HAVE LEARNED!HAVE LEARNED!