Blackboard Introduction to Economics(1).docx

# ECON 201 ## D. PREMNATH ### LECTURE OUTLINE ### INTRODUCTION TO ECONOMICS Economics is the study of decision making under conditions of scarcity. “How individuals, firms (MICRO) and societies (MACRO) CHOOSE to allocate/use limited resources in an effort to satisfy unlimited wants” Scarcity me...

# ECON 201 ## D. PREMNATH ### LECTURE OUTLINE ### INTRODUCTION TO ECONOMICS Economics is the study of decision making under conditions of scarcity. “How individuals, firms (MICRO) and societies (MACRO) CHOOSE to allocate/use limited resources in an effort to satisfy unlimited wants” Scarcity means we have to choose between competing wants and so we have to make choices which involve tradeoffs. Economics helps us understand how economic agents (individuals, firms, governments) make such decisions using tools such as cost/benefit analysis and marginal thinking using the approach of constrained optimization. ## I. Why is economics important? - Economic forces shape events that impact our society, our businesses and our daily lives. - The study of economics can improve the way we think about decision making and improve our analytical skills. ## II. Micro and Macro The main distinction is in the level of analysis. - Micro: we study the behavior of individual decision-making units such as consumers and firms. - Macro: we study the performance of the entire national economy (Economic Aggregates). ## III. Economics is primarily concerned with improving our standard of living. - Macro: we measure standard of living using economic indicators such as GDP, the rate of unemployment, the rate of inflation. - Micro: we are equally concerned with the well-being of individuals and of society but we look at it from the perspective of efficiency and equity. ## IV. The Three Coordination Tasks of an Economy: - What to Produce? (Allocative Efficiency) - How to Produce? (Efficiency in Production) - For Whom to Produce? (Equity) ## V. Sequence of Topics - Free Markets, Price Signalling and Market Efficiency - The Role of the Government in our Economy - Market Failure and Public Policy - International Trade - Key Economic Indicators (GDP, Unemployment, Inflation) - Long term economic Growth - The Model of the Macro Economy (AD-AS) - Fiscal Policy - Money and Banking - Monetary Policy ## VI. Overview of the US Economy. - The biggest economy in the world. - The most market-based economy in the world. - Characterized by growth over time. - Impacted by government economic policy and therefore by politics. ## VII. Economics as a Discipline - It is a social science not a natural science. - Economic theory uses abstract models. - Economists often disagree with each other especially in the area of normative analysis. ## VIII. Graphical Analysis