Economics Principles (Micro) ECO111

• The presentation introduces the nature, scope, and significance of economics

Nature, Scope & Significance

• Nature relates to the inherent qualities of economics
• Scope is the extent of the subject matter
• Significance is the quality of being worthy of attention

Nature of Economics

• To grasp the nature of economics, its origin, definitions, and basic concepts need examination

Origin of 'Economics'

• 'Economics' comes from the Greek word 'Oeconomicus'

• 'Oeconomicus' refers to the scientific study of efficient household management

• Greek households had limited resources but unlimited material desires

• A need arises as another is satisfied

• 'Oeconomicus' applies to the rationing of limited resources to satisfy desires

• Continuous scientific reasoning led to the concept of the efficient use of limited household resources

• Individuals, households, firms, and governments economize

Definitions of Economics

• Type A definitions relate to wealth and material welfare
• Type B definitions relate to the scarcity of means

Classical Economists

• Classical economists were the first to document their economic thoughts in books
• Adam Smith is the chief of the Classical economists
• Other Classical economists include J. B. Say, F. A. Walker, David Ricardo, J. S. Mill, and Thomas Malthus
• Classical economists considered economics as a science of material wealth

Adam Smith

• Adam Smith published "An Inquiry into the Nature and Causes of the Wealth of Nations" in 1776
• He presented economics as a 'science of wealth'

Type A Definitions

• Adam Smith defined economics as the study of the nature and causes of the wealth of nations
• J. B. Say defined economics as the study of the laws which govern wealth
• F. A. Walker defines economics as the body of knowledge related to wealth
• J. S. Mill defined economics as the practical science of the production and distribution of wealth

Criticisms of Classical Definitions

• Smith defined economics only in terms of wealth, not human welfare
• Emphasis was unduly on wealth-producing activities
• Wealth was seen as an end in itself
• The definitions limited the scope by excluding non-material goods and services

Neo-Classical Economists

• Neo-classical economists succeeded Classical economists and adopted most of their approaches with slight adjustments
• Alfred Marshall served as the chief neo-classical economist
• Other neo-classicals include A. C. Pigou, E. Cannan, I. Fisher, F.Y. Edgeworth, V. Pareto, and W. Beveridge

Alfred Marshall

• Alfred Marshall published 'Principles of Economics' in 1890

Type A Definitions - Neoclassicals

• Alfred Marshall defined economics as a study of mankind in ordinary business, examining individual and social action connected with attaining and using material requisites of well-being
• E. Cannan considered it as the explanation of the causes on which welfare depends
• W. Beveridge defines economics as the study of general methods for men to cooperate to meet their material needs
• A. C. Pigou describes economic welfare as the subject-matter of economics

Features of Marshall's

• Economics studies the economic aspect of human life
• Economics studies both individual and social actions aimed at promoting economic welfare
• Marshall considered only material things capable of promoting welfare

Criticisms of Marshall's

• Only material things were considered even though immaterial things also contribute to welfare
• There are things that don't promote welfare but have a price
• Welfare varies from person to person, country to country, and time period to time period

General Criticisms of Type A-Neoclassical

• The scope of economics was limited to material goods
• Immaterial goods (services) also contribute to human welfare
• Not all material goods promote human welfare

Lionel Robbins

• Lionel Robbins published 'An Essay on the Nature and Significance of Economic Science' in 1932
• According to Robbins, economics views the conflict of choice as a permanent characteristic of human existence

Type B

• Type B definitions relate to the scarcity of means
• They are based on postulates governed by human behavior
• Lionel Robbins led the Type B definitions of Economics
• 'Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.'

Lionel Robbins' Definition

• Ends or wants are numerous
• Non-satisfaction comes from the scarcity of means
• Scarce means have alternative uses
• Ends vary in importance, leading to the problem of choice Economics relates to all kinds of behaviour involving choice, distinguishing it from other disciplines

Robbins Definition

• Robbins' definition emphasizes Economics as a science

• Economics is neutral between ends, dealing with facts, while Ethics deals with valuation

• Economics is a systematized study of knowledge that provides a framework to analyze problems

• Robbins' definition makes economics a valuation process

• Unlimited ends and scarce means give rise to an economic problem

• Production and distribution involve economizing scarce resources in relation to varied ends

Universal Definition

• Robbins' definition has universality
• It is applicable to Robinson Crusoe, communist, and capitalist economies
• The definition is independent of legal and political frameworks
• It holds good under barter as well as with money exchange, under individual conduct, capitalist as well as social society

Paul Samuelson

• Paul Samuelson was the first American to receive the Nobel Prize in Economic Sciences
• He is referred to as the father of modern economics
• Was considered the foremost economist of the 20th century by the New York Times
• His book, 'Economics: An Introductory Analysis' is in its 19th edition and has been translated into +20 languages

Paul Samuelson's economics definition

• Economics studies how men and society choose to employ scarce productive resources for consumption among people and groups, with or without money, over time

Samuelson's Definition

• Samuelson's definition is dynamic as it includes time
• Therefore, the definition covers economic growth
• The problem of scarcity in relation to unlimited ends is noted
• Scarce means can be put to alternative uses
• Focus on the various aspects of production, distribution, and consumption

Scope of Economics

• Economics is a science/social science
• Economics has broad divisions, and also sub-disciplines

Economics as a Science

• Economics is a systematized knowledge that examines cause and effect relationships
• It includes systematic collection, classification and analysis of facts
• Economic motives of firms and individuals are measurable in monetary terms

Economics as Social Science

• Economics studies the economic and social behaviour of human beings

Economics Divisions

• Microeconomics
• Macroeconomics

Topics of Microeconomics

• Analysis of consumer behavior
• Analysis of producer behavior
• Market structures
• The behaviour of factor markets
• Income distribution
• Market failure and welfare

Topics of Macroeconomics

• Studies the behaviour of economic aggregates
• Total level of output or gross domestic product
• National income
• Total level of employment
• Macro concepts refer to the economy, and concepts receive more coverage on news media, than microeconomic concepts

Sub-Disciplines in Economics

• International economics
• Labour economics
• Information economics
• Environmental economics
• Urban economics
• Demography
• Development economics
• Monetary economics
• Defence economics
• Economic anthropology
• Health economics
• Petroleum economics
• Industrial economics

Some Basic Concepts in Economics

• Resources
• Scarcity & Choice
• Opportunity Cost

Resources

• Land (e.g., forest, gold, oil deposits)
• Labour (quantity/quality of workers)
• Capital (physical, financial, plants, machinery etc)
• Entrepreneurship is a special form of labour that is important in the over production

Scarcity & Choice

• Infinite wants and finite resources makes how to reconcile the desires with the supply
• Individuals need to make A choice between alternatives
• Scarcity dictates that people must make choices to meet their wants
• Scarcity exists at the community level, because a society does not have enough resourced, to satisfy wants

Opportunity Cost

• Highlights that making choices in the face of scarcity implies cost
• High valued opportunity must be foregone in all economic decisions
• Opportunity cost is the want that is left unsatisfied in order to satisfy another more pressing want
• It is the alternative forgone

Economic Questions

• What to produce?
• How to produce?
• For whom to produce?
• Where to produce?

Production Possibility Frontier (PPF)

• Also known as PPC
• PPF represents output combinations producible with a given amount of resources
• Any point on the curve represents the level when production output is reached, when available resources are used efficiently, with points A, B or C are inside the figure
• Output combination is produced with resources (underemployment), inefficiently due to unemployment

Significance of Economics

• Economics affects everyone as it relates choices need to be made when resources are scarce

• The individuals, governments, businesses must make a choice

• Most policy debates are cast in economic terms and for one to be effective in this sphere, Economics is paramount

• Economics develops a valuable set of reasoning skills

• Processes economists use in constructing models, analysing arguments and testing empirical predictions against available evidence, fosters vital reasoning skill

• Provides insights into the environment of resource allocation decisions, opportunity costs and project evaluation processes

• Provides career opportunities, especially to majors of economics

• Provides a good basis for securing a job

• Knowledge provides a important platform for people, and ensure optimal resource allocation

• Provides understanding of an economy

• Wide range of subjects covering business, administrative roles, banking, law

Economic analysis applies to societies by using business management, education, family, government, health & social institutions

Summation

• Economics has various definitions, but is more understandable because more relating to scarcity
• Split into microeconomics and macroeconomics
• The role is important to everyone and of effect to people

Questions about ECO111, Principles of Economics I (Micro), including course focus, lecture schedules, ground rules, and accessing online materials. Also covers the meaning and significance of economics and economic responsibilities.