Introduction to Economics

Definition of Economics

• Derived from Greek words "eco" (home) and "nomos" (accounts), it evolved from family budgeting to a broad social science.
• Defined as the analysis and description of production, distribution, and consumption of wealth.
• Notably described by Alfred Marshall as a study of mankind's ordinary life, focusing on material requisites for wellbeing.
• Lionel Robbins defines it as the study of human behavior in relation to scarce means and varying ends.

Core Concepts

• Economics centers on satisfying needs and wants through the allocation of limited resources with alternative uses.
• It examines scarcity and choice, reconciling unlimited wants with limited resources.
• Provides insight into resource costs and consumer benefits within communities.
• Concerned with coordination resulting from specialization in economic activities.

Branches of Economics

• Microeconomics:
  • Studies decision-making by households and firms and their interactions in specific markets.
  • Focuses on actions of individual agents like households, workers, and businesses.
• Macroeconomics:
  • Examines economy-wide phenomena, looking at the economy as a whole.
  • Explores broad topics such as production growth, unemployment rates, inflation, government deficits, and trade balances.

Microeconomic Issues

• Analyzes household budgeting and spending behaviors.
• Investigates combinations of goods and services that meet consumers' needs within budget constraints.
• Examines labor decisions, including full-time versus part-time work.
• Explores saving versus borrowing decisions for future needs.
• Analyzes firm production decisions including product quantity, pricing strategies, hiring practices, and financing options.

Macroeconomic Issues

• Investigates factors determining economic activity and overall production levels in a society.
• Explores job availability and national living standards in relation to economic conditions.
• Examines causes behind economic fluctuations, firm hiring practices, and long-term growth factors.

The Basic Economic Problem

• Centers on the concept of scarcity, stemming from the challenge of fulfilling unlimited wants with limited resources.
• Scarcity: A fundamental economic issue arising from the disparity between finite resources and infinite desires.

Types of Scarcity

• Absolute Scarcity:
  • Occurs when a resource is completely exhausted and cannot be replenished, e.g., extinct species.
• Relative Scarcity:
  • Happens when resources exist but are insufficient to meet demand, influenced by regional geographic and climatic conditions, e.g., water scarcity in certain areas.

Economic Decision-Making

• The fundamental economic problem raises three critical questions for societies:
  • What should be produced?
  • How should it be produced?
  • For whom should it be produced?
• Societies must determine solutions to these questions based on their scarce resources.