Introduction to Economics PDF

General Economics – Lesson 01. _____________________________________________________________________________________________________________________ Introduction to Economics 1- Definition of economics: In fact, there are many definitions of economics...

General Economics – Lesson 01. _____________________________________________________________________________________________________________________ Introduction to Economics 1- Definition of economics: In fact, there are many definitions of economics that differ according to viewpoint or aspect, and may integrate with each other to give the overall meaning of the concept of economics. Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. Economics is the study of how people make choices and decisions with scarce resources. It is a social science that deals with the production, distribution, and consumption of goods and services. Economics is concerned with how individuals, businesses, governments, and nations make choices about how to allocate resources. The central problem of economics is scarcity. There are not enough resources to satisfy all of our wants and needs (Human needs are unlimited). This means that we have to make choices about how to use our resources. We have to decide what to produce, how to produce it, and who to produce it for. Economics is the study of choices and their consequences. Our life will be shaped by the choices that we make and the challenges that we face. Adam smith (1723 - 1790), in his book “An Inquiry into Nature and Causes of Wealth of Nations” (1776) defined economics as the science of wealth. He explained how a nation’s wealth is created. He considered that the individual in the society wants to promote only his own gain and in this, he is led by an “invisible hand” to promote the interests of the society though he has no real intention to promote the society’s interests. Economics can be divided into two main branches: microeconomics and macroeconomics. Microeconomics studies the behavior of individual decision-makers, such as households and firms. Macroeconomics studies the economy as a whole, such as the national income, inflation, and unemployment. 2- The origin of the word economics: The word "economics" is derived from the Greek word "oikonomia", which means "household management". It was first used in English in the 16th century to refer to the management of a household or estate. In the 18th century, the meaning of the word began to change to refer to the study of the production, distribution, and consumption of goods and services. _____________________________________________________________________________________________________________________ General Economics – ENSSEA- 2023-2024-A.Touaibia General Economics – Lesson 01. _____________________________________________________________________________________________________________________ The Latin word for economics is "oeconomia". It is derived from the same Greek root as the English word. The word "economics" is often used interchangeably with the word "political economy". However, there is a subtle difference between the two terms. Political economy is a broader term that refers to the study of the economy in relation to politics, society, and culture. Economics is a narrower term that refers to the study of the economy in a more technical sense. Today, the word "economics" is used to refer to the study of how people make choices with scarce resources. It is a complex and ever-evolving field, and there is no one right answer to many of the questions that economists study. However, economics can provide us with a framework for understanding the world around us and making better decisions. 3- Economics is a science or an art (technical) ?: Science is a systematized body of knowledge that traces the relationship between cause and effect. Another attribute of science is that its phenomena should be amenable to measurement, and an art (technical) is a system of rules for the attainment of a given end. A science teaches us to know; an art (tecnical) teaches us to do. Applying the definition of the science, we find that economics is a branch of knowledge where the various facts relevant to it have been systematically collected, classified and analyzed. Economics investigates the possibility of deducing generalizations as regards the economic motives of human beings. The motives of individuals and business firms can be very easily measured in terms of money. Thus, economics is a science. Applying the definition of the art (technical), we find that economics offers us practical guidance in the solution of economic problems. Thus, economics is an art (tehcnical). Science and art (tehcnical) are complementary to each other and economics is both a science and an art (tehcnical). 4- Scope and methodology in economics: 4.1- Scope of economics: The field and scope of economics is expanding rapidly and has come to include a vast range of topics and issues. In the recent past, many new branches of the subject have developed, including development economics, industrial economics, transport economics, welfare economics, environmental economics, digital economics, space economics and so on …. 4.2- Methodology of economics: Economic methodology is the study of the methods used in economics, including the use of logic, mathematics, and statistics. It is also concerned with the philosophical underpinnings of economics, such as the nature of knowledge and the role of values in economic analysis. _____________________________________________________________________________________________________________________ General Economics – ENSSEA- 2023-2024-A.Touaibia  General Economics – Lesson 01. _____________________________________________________________________________________________________________________ 4.2.1- positive economics and normative economics: There are two main approaches to economic methodology: positive economics and normative economics.  Positive economics (-‫الواقعي‬- ‫ )االقتصاد اإليجابي‬is concerned with objective statements of how a market or an economy works (Describe the world as it is). These positive economic statements are based on empirical evidence and tend to be statements of fact. They can be proven to be true or false. It tries to answer the questions what was; what is; or what will be? It does not judge a system as good or bad, better or worse (Real facts and information).  Normative economics (‫ )االقتصاد المعياري‬is concerned with subjective statements about how an economy should work. These normative economic statements are based on value judgments and cannot be proven to be true or false. It deals with the questions like, what ought to be? Or what the economy should be?. Economic methodology is a complex and ever-evolving field. There is no one agreed-upon methodology for economics, and different economists may use different methods depending on the specific problem they are trying to solve. The most common methods used in economics:  Logic: Economists use logic to construct arguments and to derive conclusions from premises.  Mathematics: Economists use mathematics to model economic behavior and to analyze economic data.  Statistics: Economists use statistics to collect and analyze data about economic phenomena.  Econometrics: Econometrics is a field of economics that uses statistical methods to test economic theories and to make economic forecasts.  Case studies: Case studies are in-depth examinations of specific economic phenomena.  Experiments: Experiments are conducted to test economic theories under controlled conditions. The choice of methodology in economics depends on the specific problem that is being studied. Some problems are better suited to be studied using logic, while others are better suited to be studied using mathematics or statistics. The economist must also consider the availability of data and the resources that are available. _____________________________________________________________________________________________________________________ General Economics – ENSSEA- 2023-2024-A.Touaibia  General Economics – Lesson 01. _____________________________________________________________________________________________________________________ 4.2.2- Deductive and inductive methodology: Deductive (‫ )المنهج االستنباطي‬and inductive (‫ )المنهج االستقرائي‬methodoloy are two different approaches to reasoning:  Deductive reasoning is a top-down approach to reasoning (descend from the general to particular). It starts with a general principle or theory and then uses that principle to make inferences about specific cases.  Inductive reasoning is a bottom-up approach to reasoning (mount up from particular to general). It starts with specific observations and then makes inferences about general principles or theories. In economics, deductive reasoning is often used to test economic theories. For example, an economist might start with a theory about how the price of a good is determined. They would then use deductive reasoning to make predictions about how the price of the good would change under different circumstances. Inductive reasoning is often used to generate new economic theories. For example, an economist might observe that the price of a good tends to go up when the demand for the good goes up. They might then use inductive reasoning to infer that there is a causal relationship between the demand for a good and its price. Both deductive and inductive reasoning can be used to make valid inferences. However, each approach has its own strengths and weaknesses. Deductive reasoning is more likely to lead to valid inferences if the underlying theory is correct. However, it can be difficult to come up with a correct theory in the first place. Inductive reasoning is less likely to lead to valid inferences if the sample of observations is not representative. However, it can be used to generate new theories that can then be tested using deductive reasoning. In practice, economists often use a combination of deductive and inductive reasoning. They might start with a deductive argument to generate a hypothesis, and then use inductive reasoning to test the hypothesis. Some examples of deductive and inductive reasoning in economics:  Deductive reasoning: An economist might start with the theory that the price of a good is determined by the interaction of supply and demand. They would then use deductive reasoning to make predictions about how the price of the good would change under different circumstances, such as if the supply of the good increased or decreased.  Inductive reasoning: An economist might observe that the price of a good tends to go up when the demand for the good goes up. They might then use inductive reasoning to infer that there is a causal relationship between the demand for a good and its price. _____________________________________________________________________________________________________________________ General Economics – ENSSEA- 2023-2024-A.Touaibia  General Economics – Lesson 01. _____________________________________________________________________________________________________________________ Both deductive and inductive reasoning are important tools for economists. The best approach to use depends on the specific problem that is being studied. Economic methodology is a critical part of the study of economics. It helps economists to make sound inferences and to draw valid conclusions from their research. It also helps economists to communicate their findings to others in a clear and concise way. 5- The relationship of economics with other social sciences: Economics is a social science that studies how people make choices with scarce resources. It is closely related to other social sciences, such as political science, sociology, and psychology.  Political science is the study of how governments are organized and how they interact with each other. Economics and political science are closely related because they both deal with the allocation of resources. For example, political scientists study how governments make decisions about taxation and spending, while economists study how these decisions affect the economy.  Sociology is the study of human society and social interactions. Economics and sociology are closely related because they both deal with how people behave in groups. For example, sociologists study how social norms and institutions affect economic behavior, while economists study how economic behavior affects social norms and institutions.  Psychology is the study of human behavior. Economics and psychology are closely related because they both deal with how people make decisions. For example, psychologists study how people form preferences and how they make choices under uncertainty, while economists study how these factors affect economic behavior. In addition to these social sciences, economics is also related to other fields, such as history, law, and mathematics.  History is the study of past events. Economics and history are closely related because they both deal with how societies change over time. For example, historians study how economic factors have influenced political events, while economists study how political events have influenced economic development.  Law is the study of the rules that govern society. Economics and law are closely related because they both deal with how resources are allocated. For example, lawyers study how laws affect the economy, while economists study how economic behavior affects the legal system.  Mathematics is the study of numbers and their relationships. Economics and mathematics are closely related because they both use mathematics to model and analyze economic behavior. For example, economists use mathematics to calculate the cost of production, while mathematicians use economics to study the behavior of markets. Statistics is the science of collecting, analyzing, and interpreting data. Economics is the study of how people make choices with scarce resources. These two disciplines are closely related because statistics is used to collect and analyze data about economic phenomena. _____________________________________________________________________________________________________________________ General Economics – ENSSEA- 2023-2024-A.Touaibia  General Economics – Lesson 01. _____________________________________________________________________________________________________________________ Some of the ways that statistics is used in economics:  Collecting data: Economists use statistics to collect data about economic variables, such as prices, wages, and employment. This data can be collected from surveys, government agencies, and businesses.  Analyzing data: Economists use statistics to analyze data about economic variables. This can involve using statistical tests to determine if there is a relationship between different variables, or to forecast future trends.  Interpreting data: Economists use statistics to interpret data about economic variables. This can involve explaining the meaning of the data, or using the data to make predictions about the future. Economics and statistics are both essential tools for understanding the world around us. By using statistics, economists can better understand the behavior of markets and economies, and make more informed decisions about public policy. Some specific examples of how statistics is used in economics:  To test economic theories: Economists use statistics to test economic theories. For example, an economist might test the theory that the price of a good is determined by the interaction of supply and demand. They would do this by collecting data on the price of the good, the supply of the good, and the demand for the good. They would then use statistical tests to determine if there is a relationship between these variables.  To make economic forecasts: Economists use statistics to make economic forecasts. For example, an economist might forecast the unemployment rate for the next year. They would do this by collecting data on the unemployment rate in previous years, and then using statistical models to predict the future unemployment rate.  To evaluate economic policies: Economists use statistics to evaluate economic policies. For example, an economist might evaluate the effectiveness of a government policy to reduce unemployment. They would do this by collecting data on the unemployment rate before and after the policy was implemented. They would then use statistical tests to determine if the policy had a significant impact on the unemployment rate. Statistics is a powerful tool that can be used to answer a wide variety of questions in economics. By using statistics, economists can better understand the world around us, and make more informed decisions about public policy. Today we are witnessing the artificial intelligence revolution, that combines mathematics, statistics, and computer, and the extent of its use and impact (AI) in all aspects of human life, including the economy, in addition to another revolution related to the field of computer, which is the quantum computer, which will inevitably merge with artificial intelligence and shape our future economy. _____________________________________________________________________________________________________________________ General Economics – ENSSEA- 2023-2024-A.Touaibia