Basic Microeconomics Lesson I (Part 2) PDF

BASIC ECONOMIC CONCEPTS LESSON I (Part 2) BA Core Course 1- Basic Microeconomics  ECONOMICS a social science that studies the optimum allocation, over time , of scarce human and non- human resources among their alternative uses in order to satisfy unlimited human wants and...

BASIC ECONOMIC CONCEPTS LESSON I (Part 2) BA Core Course 1- Basic Microeconomics  ECONOMICS a social science that studies the optimum allocation, over time , of scarce human and non- human resources among their alternative uses in order to satisfy unlimited human wants and desires. the root problem that economics deals with is the problem of scarcity  ECONOMICS AS A DISCIPLINE ❑Oikonomia - Greek word which means management of the household ❑a social science – human person as the principal figure of interest ❑a science – systematic body of knowledge utilizing both deduction and induction ❑Application: formal business competition to analysis of interpersonal relationships within a family ECONOMICS VS OTHER SOCIAL SCIENCES Methodologies used in analyzing individuals and societies : Economic theory – abstract models used as representations of reality Empirical economic research – serves to verify the predictions from economic theory  ECONOMIC THEORY part of economics where simple models are used to describe economic phenomena (simple models like : graphs, flowcharts or sets of equations)  RATIONALITY AND EXOGENOUS PREFERENCES Rationality is one distinct assumption about decision makers The assumption of rationality imposes minimum standards for economic behavior Exogenous preferences – these are taken as given and is not part of economic analysis  OPTIMAL ECONOMIC BEHAVIOR 2 views: (1)as a description of actual economic behavior which needs to be subjected to tests to determine optimal behavior (positive economics) or (2)as prescribing a norm.  EQUILIBRIUM ANALYSIS Partial equilibrium - this results when an optimal choice is made by an individual, an outcome results and this constitutes a partial equilibrium for the individual. General equilibrium is where all agents (consumers and firms) are simultaneously in equilibrium  EMPIRICAL ECONOMICS ✓the task of empirical economics is to confront testable hypotheses with real world data ✓Statistics and econometrics are quantitative methods used as tools to test economic theories ✓Statistics analyzes data trends. ✓Descriptive statistics – branch of statistics that deals with the summary and analysis of real world data  EMPIRICAL ANALYSIS Inferential statistics - this branch of statistics deals with the scientific way of making inferences regarding the key parameters of a model based on sampling from a population Econometrics – branch of economics that deals with the creation of empirical models of economic behavior, usually in the form of equations called regression equations.  BRANCHED OF ECONOMICS’ ❑Microeconomics - looks at the economic behavior of individuals and firms; individual markets are examined; e.g. labor, employment (subfields of economics like labor economics, environmental economics, health economics, etc) ❑Macroeconomics - studies the economy as a whole; looks at all markets and uses aggregate variables ; e.g. price levels, total exports and imports, money supply, etc,  How People Make Decisions MARGINAL INCENTIVES TRADE-OFFS COST THINKING  TEN PRINCIPLES OF ECONOMICS How People Make Decisions 1: People Face Trade-offs 2: The Cost of Something Is What You Give Up to Get It 3: Rational People Think at the Margin 4: People Respond to Incentives How People Interact TRADE MARKETS GOVERNMENT  TEN PRINCIPLES OF ECONOMICS How People Interact 5: Trade Can Make Everyone Better Off 6: Markets Are Usually a Good Way to Organize Economic Activity 7: Governments Can Sometimes Improve Market Outcomes How the Economy Works PRODUCTION CURRENCY LABOR AND PRICE  TEN PRINCIPLES OF ECONOMICS How the Economy as a Whole Works 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services 9: Prices Rise When the Government Prints Too Much Money 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment HAVE A GREAT DAY☺