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Introduction To Economic

The document provides an introduction to economics, defining key economic concepts like scarcity, resources, wants, needs, opportunity cost, and tradeoffs. It also distinguishes between microeconomics and macroeconomics as well as positive and normative economics. Finally, it outlines reasons for studying economics like understanding the world and gaining career skills.

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nahidulislam1140
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9 views16 pages

Introduction To Economic

The document provides an introduction to economics, defining key economic concepts like scarcity, resources, wants, needs, opportunity cost, and tradeoffs. It also distinguishes between microeconomics and macroeconomics as well as positive and normative economics. Finally, it outlines reasons for studying economics like understanding the world and gaining career skills.

Uploaded by

nahidulislam1140
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTRODUCTION TO ECONOMICS

WHAT IS ECONOMICS

• Economics – the study of how individuals and societies make decisions


about ways to use scarce resources to fulfill wants and needs.
WHAT ARE RESOURCES?

• Definition: The things used to make other goods.


BUT, THERE’S A
FUNDAMENTAL PROBLEM:
• Unlimited wants and needs but limited resources.
• SCARCITY: Situation in which the amount of something available is insufficient to satisfy the
desire for it
SCARCITY AND INDIVIDUAL CHOICE

• There are an unlimited variety of scarcities, however they are all based on two
basic limitations
– Scarce time
– Scarce spending power
• Limitations force each of us to make choices
• Economists study choices we make as individuals, and consequences of those
choices
• Economists also study more subtle and indirect effects of individual choice on
our society
SCARCITY AND SOCIAL CHOICE
• The problem for society is a scarcity of resources
– Scarcity of Labor
• Time human beings spend producing goods and services
– Scarcity of Capital
• Something produced that is long-lasting, and used to make other things that we value
– Human capital
– Capital stock
– Scarcity of land
• Physical space on which production occurs, and the natural resources that come with it
– Scarcity of entrepreneurship
• Ability and willingness to combine the other resources into a productive enterprise
• As a society our resources—land, labor, and capital—are insufficient to
produce all the goods and services we might desire
– In other words, society faces a scarcity of resources
SCARCITY AND ECONOMICS
• The scarcity of resources—and the choices it forces us to
make—is the source of all of the problems studied in economics
– Households allocate limited income among goods and services
– Business firms choices of what to produce and how much are limited by
costs of production
– Government agencies work with limited budgets and must carefully choose
which goals to pursue
• Economists study these decisions to
– Explain how our economic system works
– Forecast the future of our economy
– Suggest ways to make that future even better
CHOICES, CHOICES

• Because ALL resources, goods, and services are limited –


• WE MUST MAKE CHOICES!!!!
• We make choices about how we spend our money, time, and energy so we can fulfill our
NEEDS and WANTS.
WANTS AND NEEDS &
TRADE-OFFS
• NEEDS – “stuff” we must have to survive, generally: food, shelter, clothing .
• WANTS – “stuff” we would really like to have (Fancy food, shelter, clothing, big
screen TVs, jewelry, conveniences . . . Also known as LUXURIES.
• You can’t have it all (SCARCITY – remember) so you have to choose how to spend
your money, time, and energy. These decisions involve picking one thing over all the
other possibilities – a TRADE-OFF
Needs Vs. Wants
• Needs: items for survival, water, food, shelter.
• Wants: luxuries, fancy cars, vacations.
WHAT IS OPPORTUNITY COST?

• The costs of the choice NOT taken when you choose to do ONE thing, its
value (how much it is worth) is measured by the value of the NEXT BEST
CHOICE. This can be in time, energy, or even MONEY.
WHAT ARE THE 5 ECONOMIC QUESTIONS
SOCIETY (WE) MUST FIGURE OUT
• WHAT to produce (make)
• HOW MUCH to produce (quantity)
• HOW to Produce it (manufacture)
• FOR WHOM to Produce (who gets what)
• WHO gets to make these decisions?
MICROECONOMICS &
MACROECONOMICS
• Micro
– Micro comes from Greek word mikros, meaning “small”
• Microeconomics
– Study of behavior of individual households, firms, and governments
• Choices they make
• Interaction in specific markets
• Focuses on individual parts of an economy, rather than the whole
• Macro
– Macro comes from Greek word, makros, meaning “large”
• Macroeconomics
– Study of the economy as a whole
• Focuses on big picture and ignores fine details
POSITIVE ECONOMICS & NORMATIVE
ECONOMICS
Positive Economics
• Study of how economy works
• Statements about how the economy works are positive statements, whether they are true or not
• Accuracy of positive statements can be tested by looking at the facts—and just the facts.
Normative Economics
• Study of what should be
– Used to make value judgments, identify problems, and prescribe solutions
– Statements that suggest what we should do about economic facts, are normative statements
• Based on values
– Normative statements cannot be proved or disproved by the facts alone
WHY ECONOMISTS DISAGREE

• In some cases, the disagreement may be positive in nature because


– Our knowledge of the economy is imperfect
– Certain facts are in dispute
• In most cases, the disagreement is normative in nature because
– While the facts may not be in dispute
• Differing values of economists lead them to dissimilar conclusions about what should be done
WHY STUDY ECONOMICS

•To understand the world better


–You’ll begin to understand the cause of many of the
things that affect your life
•To gain self-confidence
–You’ll lose that feeling that mysterious, inexplicable
forces are shaping your life for you
WHY STUDY ECONOMICS

• To achieve social change


– You’ll gain tools to understand origins of social problems and design more effective
solutions
• To help prepare for other careers
– You’ll discover that a wide range of careers deal with economic issues on many levels
• To become an economist
– You’ll begin to develop a body of knowledge that could lead you to become an economist
in the future

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