EC4101 Week 01 Lecture 01 PDF

EC4101 Wk.01 Economics: The study of how societies make choices under conditions of scarcity, the study of how society decides what, how and for whom to produce. Microeconomics: Offers a detailed treatment of how individuals and firms make economic decisions. Macroeconomics: The study of the econ...

EC4101 Wk.01 Economics: The study of how societies make choices under conditions of scarcity, the study of how society decides what, how and for whom to produce. Microeconomics: Offers a detailed treatment of how individuals and firms make economic decisions. Macroeconomics: The study of the economy as a system. Principles of Economics: 1. Resources are Scarce: A resource is anything that can be used to produce something else. The quantity available isn’t large enough to satisfy all productive uses. Humans have been ‘deficit economic spenders’ since the 1960s. Scarce resource: Where the demand of that resource at a zero price would exceed the available supply. 2. Opportunity Cost: What someone must give up to get something, the real cost of an item, crucial to understanding choices. Degrowth: shrinking rather than growing economies, so we use less of the world's energy and resources and put wellbeing ahead of profit. Decoupling: An economy that would be able to grow without corresponding increases in environmental pressure. 3. Marginal Decision-Making Occurs: Considering a little more or a little less than what we already have. We decide by using marginal analysis, which means comparing the costs and benefits of a little more or a little less. When marginal cost is equal to marginal benefit, you’ve found the right amount of that activity to do. 4. We Respond to Incentives: This is anything that offers rewards/penalties to those who change their behaviour. 5. Gains from Trade: People can get more of what they want through trade instead of trying to be self-sufficient. 6. Markets move Towards Equilibrium: This is when no individual would be better off doing something else. 7. Resources should be used Efficiently: An efficient economy is one that takes opportunities to make some people better off without making others worse off. Equity is when everyone gets their fair share. 8. Competitive Markets usually lead to Efficiency: This occurs in all cases apart from when the individual pursuit of self-interest makes society worse off, leading to a market failure. 9. Government Intervention occurs after Market Failure: Things like regulation and state provision can improve society’s welfare. Principles underlying economy wide interactions (Macroeconomics): One’s spending is another’s income Overall spending sometimes gets out of line with the economy’s productive capacity. Government policies can change spending Economics involves thinking of alternatives, evaluating the cost of individual and social choices and understanding how certain events and issues are related. Economists think analytically and objectively, using the scientific method. References: Notes based on EC4101 Lecture Slides and the relevant readings from Economics (12th Ed.) David Begg.