Micro vs. Macro Economics

• Mankiw's "Principles of Economics," chapters 4, 5, and 7 are recommended readings for this topic.

Objectives of Studying Economics

• To become familiar with the central idea of economics
• To know the difference of market economy and planned economy
• To evaluate economics as a scientific discipline
• To understand the purpose of a economic model, and its variables
• To study an initial, primary economic model
• To learn the division of economic theory

Economics and Markets

• Economics originates from the ancient Greek term "oikonomia," a combination of "oikos" (house) and "nomos" (custom or law), signifying household management.
• Microeconomics is derived from the Greek word "mikros," which means "small," and focuses on managing individual households.
• Macroeconomics stems from the Greek word "makros," meaning "large," and concentrates on managing the nation as a whole.
• Economics is a response to the issue of unlimited needs versus limited resources and studies how communities allocate scarce resources to produce and distribute goods/services. It addresses questions about what to produce and how much, production methods, purpose, and decision-makers.
• In a market economy, resources are allocated through decentralized decisions made by firms and households interacting in markets.
• In a centrally planned economy, a central authority determines resource allocation, including what to produce, how much, production factors, and distribution.
• A market is Buyers and sellers interact within to determine the prices of goods and services.
• The price system determines solutions for issues of consumption distribution and production.
• Market prices indicate value to consumers and the cost of resources.
• Adam Smith noted in "The Wealth of Nations" (1776) that households and firms are guided by an "invisible hand," or the price system
• Buyer-seller interactions set prices that reflect value production costs, and promote economic welfare.
• The operation of households and firms produces optimized economic welfare.
• Efficiency, the optimal use of scarce resources achieved

Government intervention in the market

• Governments intervene in market economies to rectify them and enable free market interactions, a system called a mixed economy.
• Government intervention in mixed economies happens through redistribution of income
• Government intervention in mixed economies happens through addressing market failures
• Government intervention in mixed economies happens through implementing macroeconomic policies

Economic Models and the Scientific Method

• Economists act in the roles as scientists and consultants giving them two functions
• Scientists: to explain the world
• Consultants: to improve the world
• Scientific method is the first development of therories through observation
• Scientific method is the systematic approach to developing theories through observation, gathering data to test them, and ensuring repeatability.
• It's harder to evaluate economic theories with real-world data than in fields such as physics, due to the limited data generation ability.
• Economists use historical experiments to develop and test them.
• An economic theory organizes ideas about the economy into a logical model while economic models are simplified descriptions of economic reality
• Economic models are tested empirically to assess their assumptions.
• Economic model characteristics: understandable, manageable, realistic, and empirically testable. They often use diagrams and equations.
• Economic models use economic variables, which represent aspects of the economy or outcomes of agents' actions.
• Historical data is used to check economic models and theories.

Types of variables

• Endogenous variables have a value determined inside the model (e.g., consumption).
• Exogenous variables have a value determined outside the model (e.g., population).
• Flow variables, like income, are measured over a period of time.
• Stock variables, like wealth, are measured at a specific point in time.
• Nominal variables are expressed in current year prices (e.g., current GDP in monetary units).
• Real variables are expressed in constant terms relative to a base year to avoid price level changes (e.g., real GDP).

Types of analysis

• Positive analysis studies the economic effects of a policy using a model without discussing its desirability.
• Normative analysis assesses whether a policy should be used, including the scientific consequences and subjective views.

The Circular-Flow Model

• The circular-flow diagram represents economic transactions as flows within a circle

Microeconomics and Macroeconomics

• It is traditionally divided into the fields of microeconomics and macroeconomics.
• Microeconomics studies decisions of households, firms, and their interactions in markets.
• It addresses individual consumption, firm production, and price differences.
• Macroeconomics examines economy-wide phenomena.
• Unemployment is a concept of Macroeconomics
• Changes in the price level is a concept of Macroeconomics
• Economic Growth is a concept of Macroeconomics
• Economic policies is a concept of Macroeconomics
• Macro and Micro economics use similar Economic Concepts and Methods
• Microeconomics deals with single economic actors (consumers, workers and firms)
• Macroeconomics is interested with the whole economics and its aggregate concepts, like consumption and production

Explore the principles of micro and macroeconomics, resource allocation in market and planned economies, and the fundamental problem of scarcity. Understand the roles of buyers and sellers, and the conceptual translation of 'economics'.