Introduction to Economics

Definition of Economics

• Economics examines how real-world economies function at various levels.
• Alfred Marshall defined it as the study of human activity related to everyday life and business.
• Core issues include price control, resource allocation, and market dynamics.

Importance of Studying Economics

• Understanding significant societal changes, particularly post-industrial revolution.
• Addresses issues like inflation, joblessness, and social disparity.
• Provides individuals and policymakers with tools for informed decision-making.

Historical Development of Economics

• "Economics" traces its roots back to ancient Greek concepts of household management.
• Key economists:
  • Adam Smith: Advocated limited government intervention.
  • David Ricardo: Introduced the principle of comparative advantage.
  • Karl Marx: Criticized capitalism, supporting socialism.
  • John Maynard Keynes: Promoted government intervention during economic downturns.

Difference Between Political Economy and Economics

• Political economy merges economic thought with political and ethical considerations to analyze national wealth creation.
• Marshall's definition of economics focuses on individual behavior and market forces.

Key Definitions by Influential Economists

• Adam Smith: Economics is the study of wealth creation.
• Alfred Marshall: Economics studies human behavior in everyday economic activity.
• Lionel Robbins: Economics examines human behavior concerning scarce resources.
• John Maynard Keynes: Economics is a practical tool for developing sound conclusions.

Microeconomics vs. Macroeconomics

• Microeconomics: Examines individual and business-level decisions.
• Macroeconomics: Studies large-scale economic factors, including inflation and national output.

Methods and Models in Economics

• Economists use deduction and induction for theory development and testing.
• Models simplify real-world situations to explain or forecast economic trends.

Positive vs. Normative Economics

• Positive economics: Presents factual statements for testing.
• Normative economics: Includes value judgments and opinions.

Ceteris Paribus Rule

• This rule assumes all other variables are constant to study the relationship between economic factors.

Key Concepts

• Models, normative economics, microeconomics, positive economics, macroeconomics, ceteris paribus, induction, deduction are foundational economic ideas.

Self-Review Questions

• Exercises are available to further enhance understanding of economics concepts.