Introduction to Economics

Introduction to Economics

• Economics is the study of how individuals and societies make decisions to use limited resources to satisfy unlimited wants.
• The fundamental problem in economics is scarcity—resources are limited, while wants are unlimited.
• Choices must be made because of scarcity, leading to the concept of opportunity cost.

Topic Outline

• Definitions of Economics
• Economic Define: Scarcity, Choice, and Opportunity Cost
• Ceteris Paribus and Theory
• Scope of Economic:
  • Microeconomic
  • Macroeconomic
  • Normative
  • Positive

Definition of Economics

• Economics is a social science examining how individuals and societies decide how best to use scarce resources to meet their unlimited wants.
• Two fundamental economic problems underpin this study:
  • Scarcity: Resources are limited relative to wants.
  • Choice: Individuals and societies constantly face choices due to scarcity and must decide what to produce.

Unlimited/Infinite Wants

• Wants are desires for goods and services.
• Tangible wants include physical goods (e.g. a book, machinery), while intangible wants include non-physical items (e.g. patents, copyrights).
• Goods provide utility or satisfaction, while bads create disutility or dissatisfaction.

Limited/Finite Resources/Factors of Production/Inputs

• Land: All natural resources (e.g., minerals, forests, water, air).
• Labour: Human effort (physical or mental) contributing to production.
• Capital: Man-made resources used in production (e.g., factories, machinery, tools, computers, buildings, equipment).
• Entrepreneurship: Combines other factors to create goods and services. Entrepreneurs take risks and make profits by creating new products, ideas, processes, etc.

Economic Define: Scarcity, Choice and Opportunity Cost

• Scarcity: The condition where wants exceed available resources.
• Choice: Decisions about using scarce resources.
• Opportunity Cost: The value of the next best alternative forgone when a choice is made.

Ceteris Paribus and Theory

• Ceteris Paribus: A Latin term meaning "other things being equal"—all other variables are held constant.
• Theory: A generalized explanation of how nature works. It explains relationships between variables. This generalized explanation of causal relationships can be used to explain and make predictions.

Scope of Economics

• Microeconomics: Examines the behaviour of individual economic agents (firms and households) and markets.

  • Focuses on how prices are determined in individual industries and markets and how they interact in the economy.

• Macroeconomics: Examines the overall performance of an economy and variables like GDP, unemployment, inflation, and economic growth on a national level.

• Positive Economics: Studies economic facts, cause and effect relationships, and what is (with observable data), and what will be.

  • Data-driven, testable, able to be proven or disproven through observation.

• Normative Economics: Deals with value judgments and subjective opinions about what should be, what is desirable or undesirable, what is right or wrong. These judgments cannot be tested and proven.