Introduction to Economics

Objectives of an Economy

• The main objectives of an economy include:
  • Economic growth
  • Full employment
  • Price stability
  • Equitable distribution of income
  • Balance of payments stability

Factors of Production

• Assets are considered a factor of production, specifically as capital, meaning they can be used to produce goods or services.

Classical School of Thought

• The Classical School of Thought defines economics as the study of wealth creation and distribution.
• A main critique is that this definition is too narrow, neglecting the aspects of human welfare and resource scarcity.

Neo-Classical School of Thought

• The Neo-Classical School of Thought defines economics as the "science of material welfare."
• This definition is criticized for focusing too heavily on material goods and not considering intangible aspects of welfare, such as social well-being.

Modern School of Thought

• The Modern School of Thought defines economics as the study of how individuals make choices under scarcity.
• It characterizes wants as unlimited and recurring, while resources are limited and have alternative uses.
• This implies that resources are scarce and have alternate uses, meaning there is always a trade-off when allocating resources.

Characteristics of Wants

• Wants are unlimited and recurring in nature, implying that individuals will always desire more goods and services.

Microeconomics vs. Macroeconomics

• Microeconomics studies the behavior of individual economic units, such as households and firms.
• Macroeconomics analyzes the behavior of the overall economy, including national income, inflation, and unemployment.

Economics as a Science and Art

• Economics is described as both a science and an art because:
  • It uses scientific methods to analyze economic phenomena, but also
  • Requires judgment and creativity in applying economic principles to real-world situations.

Defining Characteristic of Factors of Production

• Factors of production are inputs used to produce goods and services, and they are essential for economic activity.

Focus of the Neo-Classical School of Thought

• The Neo-Classical School of Thought primarily focuses on individual decision-making in resource allocation and consumer behavior.

Modern School of Thought on Resources

• The Modern School of Thought emphasizes that resources are scarce, meaning limited in supply, and therefore must be allocated efficiently.

"Satiable" in Economics

• In economics, "satiable" refers to a want that can be fully satisfied. However, most wants are thought to be insatiable.

Classical School Overlooked Component

• The Classical School of Thought significantly overlooked human welfare, focusing primarily on wealth creation and distribution.

Distinction between Microeconomics and Macroeconomics

• Microeconomics examines individual economic units, while macroeconomics focuses on the economy as a whole.

Critique of Neo-Classical School of Thought

• The Neo-Classical School of Thought is criticized for being overly focused on individual rationality and market equilibrium, neglecting social and environmental issues.

Economics as Science and Art Definition

• Economics can be described as both a science and an art because it uses scientific methods to study economic phenomena but also requires judgment and creativity to apply theoretical knowledge to real-world problems.