1.

Give the definition of Economics

Economics is a social science that studies the ways

individuals and groups allocate resources, including
money, buildings, land, time, tools and know-how. Its
two major divisions are microeconomics, which starts
with individual decision-making, and
macroeconomics,
which focuses on the overall result. Another way to
divide economics is by whether it's theoretical or
applied. In government, business and research
institutions, economists work in many wide-ranging
fields of economics.
2.

Why should we study economics

III. Why Study Economics?

A. Economics for citizenship.
1. Most political problems have an economic aspect, whether it is balancing the budget,
fighting over the tax structure, welfare reform, international trade, or concern for the
environment.
2. Both the voters and the elected officials can fulfill their role more effectively if they have
an understanding of economic principles.
B. Professional and personal applications.
1. The study of economics helps to develop an individuals analytical skills and allows
students to better predict the logical consequences of their actions.
2. Economic principles enable business managers to make more intelligent decisions.
3. Economics can help individuals make better buying decisions, better employment
choices, and better financial investments.
The Nature and Method of Economics
7

4. Economics is however, mainly an academic, not a vocational subject. Its primary

objective is to examine problems and decisions from a social rather than personal point
of view. It is not a series of how to make money examples.

3. What are the kinds of resources

Economists have long recognized three distinct types

of economic
resources that people use to create the things they
want.
Natural Resources, Human Resources, and Capital
Resources are
the three types of economic resources, and they are
also referred
to as "factors of production".
Natural resources are defined as everything in
the universe that is not created by human
beings.
Air, sunlight, forests, earth, water and minerals
are all classified as natural resources, as are
all manner of natural forces or opportunities
that are not created by people.
Human resources use capital resources on
natural resources to produce wealth.
Every tangible good is made up of the raw
materials that come from nature -- and
because all people (and other living things)
have material needs for survival, everyone

must have access to some natural resources

in order to live.
Human Resources
To make the gifts of nature satisfy our needs and
desires,
human beings must do something with the natural
resources;
they must exert themselves, and this human exertion
in
production is called labor.
Everything that people do, to convert natural
opportunities into
human satisfactions -- whether it involves the
exertion of
brawn, or brains, or both -- is labor, to the economist.
When natural resources are worked up by labor into
tangible
goods, which satisfy human desires and have
exchange value,
we call those goods Wealth.
When labor satisfies desires directly, without
providing a

material good, we call that "Services"; thus,

economists say
that labor provides the economy with "goods and
services".
Captial Resources
When some of the wealth is used to produce more
wealth,
economists refer to it as capital.
A hammer, a screwdriver, and a saw are used by a
carpenter
to make a table.
The table has exchange value. The truck which
delivers the
table to a retail store, the hammer and other tools -and
even the cash register -- are all forms of capital.
Capital resources increase labor's ability to produce
wealth
(and services too).
Therefore, there is always a demand for capital
goods, and
some labor will be devoted to supplying those goods,
rather

than supplying the consumer goods that directly

satisfy
desires.
4. What are the divisions of economics
The Small Picture
Microeconomics studies the small picture -- the
behavior of individuals and companies and the
market
for each type of product. For example,
microeconomists
study the influence of supply and demand on the
price
of shoes. Although "micro" is a prefix meaning
"small,"
the worldwide market for a particular product, such
as
wheat, is also of interest to microeconomists.
Microeconomics is based on the assumptions
of Adam Smith, an 18th-century philosopher who is
widely considered to be the father of
economics, wherein market conditions -- supply,
demand, production and selling -- are in
equilibrium, and, if perturbed, quickly return to
equilibrium. Everyday concerns, such as

price supports, taxes and minimum wages, are part

of microeconomics, according to G.
Chris Rodrigo of the International Monetary Fund.
The Big Picture
Macroeconomics studies the function of the economy
of a nation as a whole. Its domain
includes how government policies and the markets
for various products affect inflation,
employment and economic growth. However, the
macro side also extends beyond national
borders because international trade and investment
impact the economies of many
nations. Important areas of study in macroeconomics
include short- and long-term trends.
Macroeconomics originated with John Maynard
Keynes in his attempts to explain the
"market failure" that characterized the Great
Depression, according to Rodrigo.
Theoretical Economics
The American Economic Association, AEA, also
divides economics into theoretical and
applied branches. Theoretical economics develops
core abilities through deductive and

inductive reasoning. For example, mathematical

reasoning is deductive, drawing
conclusions from what's given; it isn't concerned with
the usefulness of its results.
Inductive economics, on the other hand, uses
observations as a basis for finding patterns
and typically produces practical information.
Theoreticians are generally researchers, who
test existing theories or models or propose new ones.
An economic theoretician may, for
example, examine bargaining or game theory.
Applied Economics
Most economists work or teach in an area of applied
economics, but there are many
specialties. Including theoretical and applied fields,
the AEA lists numerous major divisions
of economics, each of which has subdivisions. The
overlapping boundaries between fields
makes the situation even more complicated,
according to the AEA. However, some major
specialties of applied economics include financial
economics, which studies saving,
investing and risk, and labor and demographic
economics, which studies hiring, job

decisions and family formation. Other important

applied fields include urban, rural and
regional economics, business economics, industrial
organization, health, education and
welfare economics and public economics.

Exchange refers to the buying and selling of goods

and services, either through barter or
the medium of money. In most economies, exchange
occurs in a market, the medium that
brings together consumers and producers.
Production involves combining inputs or factors, such
as land, labor and capital, to
produce goods and services. Economists use a
production function to study the relationship
between inputs and the goods and services
produced.
Governments are active participants in the economy.
Public finance is the division of
economics that studies taxation and expenditure by
governments and the economic effects.

5. Differentiate positive and normative

economics
Positive economics is objective and fact based, while
normative economics is subjective and value
based. Positive economic statements do not have to
be correct, but they must be able to be tested
and proved or disproved. Normative economic
statements are opinion based, so they cannot be
proved
or disproved.
While this distinction seems simple, it is not always
easy to differentiate between the positive and the
normative. Many widely-accepted statements that
people hold as fact are actually value based.
For example, the statement, "government should
provide basic healthcare to all citizens" is a
normative
economic statement. There is no way to prove
whether government "should" provide healthcare;
this
statement is based on opinions about the role of
government in individuals' lives, the importance of
healthcare and who should pay for it.
The statement, "government-provided healthcare
increases public expenditures" is a positive economic

statement, because it can be proved or disproved by

examining healthcare spending data in countries like
Canada and Britain where the government provides
healthcare.
Disagreements over public policies typically revolve
around normative economic statements, and the
disagreements persist because neither side can
prove that it is correct or that its opponent is
incorrect. A
clear understanding of the difference between
positive and normative economics should lead to
better policy
making, if policies are made based on facts (positive
economics), not opinions (normative economics).
Nonetheless, numerous policies on issues ranging
from international trade to welfare are at least
partially
based on normative economics.
6. What are the economic problems
The Economic Problem
The economic problem emerges because our desire
for goods and services to consume is greater than
our

ability to produce those goods and services. The

demand for goods and services arises from human
wants.
There are three types of human wants.
Biological wants are for the goods and services
needed to sustain human life. These are food,
shelter, and
clothing. These goods are often called "necessities".
Cultural wants for are for goods and services beyond
necessities in order to maintain the socially accepted
standard of living. The idea of a standard of living will
vary with time and place. An acceptable living
standard
for 1800 would not be acceptable in 2000. These
goods and services are called "conveniences".
Demonstration wants are for goods and services
beyond conveniences. Thanks to modern
telecommunications,
we all know about the lifestyles of the rich and
famous, and would not mind it for ourselves. These
goods and
services are called "luxuries". Note that economic
development means that the luxuries of yesterday
become
the conveniences of today!

Economists assume that human wants possess a

critical characteristic that I will state as a proposition.
Proposition A: Human wants for goods and services
to consume are, in the aggregate, insatiable.
We have never seen any human society enjoying
want saturation, including the United States today.
Sadly, the
developing nations of the world often cannot even
provide for life sustaining biological wants.
The supply of goods and services results from the
production process. In production, various inputs are
brought together and combined to create goods and
services. These inputs are classified into the three
"factors
of production".
Land is natural resources or our endowment from
nature. The payments for the use of land are called
"rents"
and "royalties".
Labor is all human effort, both physical and mental,
used in production. The payments for labor are
"wages"
and "salaries".
Capital is all goods used to produce other goods and
services. Capital is also called "producer durables".

Capital has to be produced, and to get more capital

we must reduce our production of consumer goods.
The
payments for capital are "interest" for debt
(borrowed) capital and "profits" for equity (owner
supplied) capital.
The factors of production are versatile and may be
combined in different proportions to produce the
same
thing. The United States is capital abundant and uses
machinery intensively for farming. China is labor
abundant and uses people intensively for farming.
The factors of production possess a critical
characteristic.
Proposition B: The factors of production, at any time,
exist in fixed and limited quantities, therefore placing
a
ceiling on the output of goods and services.
Combining propositions A and B yields:
The Economic Problem: The wants of a society for
goods and services to consume will always exceed
the
ability of that society to produce goods and services.

This problem poses serious policy questions to all

nations, the advanced as well as the less developed.
For the
less developed, it is often a cruel dilemma for their
economies are often hard pressed even to furnish the
biological necessities. "Poverty" in the Third World is
not the same as "poverty" in the United States.
7. Types of economic system.