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Transcript of economics
Wants Scarcity Problem of Scarcity ECONOMICS
SCARCITY Is a science that deals with the management of scarce resources. Is simply scarcity and choice. Their relationship is such that if there is no scarcity, there is no need for economics. The study of economics was essentially founded in order to address the issue of resource allocation and distribution, in response to scarcity. ECONOMICS Economics is a science that deals with the management of scarce resources. It is simply scarcity and choice. The two Greek roots of the word economics are
oikos -- meaning household -- and nomus -- meaning
system or management.
Oikonomia or oikonomus therefore means the "management of household." Ceteris Paribus means "all other things held constant or else equal". Classical
Economics Adam Smith
Father of Economics
His book, "Wealth of Nations", published in 1776, became known as "the bible of economics". John Stuart Mill
He developed the basic analysis of the political economy. The term political economy is an older English term that applies management to an entire polis (state). Karl Marx
His major work, Das Kapital, is the centerpiece from which major socialist thought was to emerge. Neoclassical Economics Leon Walras
Introduced the general economic system and developed the analysis of equilibrium in several markets. Alfred Marshall
Became the most influential economist during that time because of his book "Principles in Economics".
He developed the analysis of equilibrium of a particular market and the concept "marginalism". Keyne's General Theory of Employment, Interest and Money John Maynard Keynes
An English economist who offered an explanation of mass unemployment and suggestions for government policy to cure unemployment in his influential book: The General Theory of Employment, Interest and Money. Non-Walrasian Economics Neoclassical Economics was believed to have transpired around the year 1870. Its main concern was market system efficiencies. John Hicks
He was recognized for his analysis of the IS-LM model, which is considered as an important macroeconomic model.
IS refers to the good market for a given interest rate, while LM means money market for a given value of aggregate output or income. Post-Keynesian
Economics This period introduced major post-Keynesian, neoclassical economists, whose views are known as the post-Keynesian "mainstream economics". Post-Keynesian Economists:
Paul A. Samuelson
Kenneth J. Arrow
Milton Friedman Chapter 1: Economic Way of Thinking New Classical Economics New Classical Economics highlighted the importance of adherence to national expectations hypothesis and analysis, which included various economic phenomena in formulating different kinds of studies and new theories in economics. Positive and Normative Economics Positive Economics
An economic analysis that considers economic conditions "as they are", or "as it is".
It uses scientific explanation in analyzing the different transactions in the economy.
It simply answers the question "what is". Examples of positive statements:
A rise in consumer incomes will lead to a rise in the demand of new cars.
A fall in exchange rate will lead to an increase in export overseas. Normative Economics
An economic analysis which judges economic conditions "as it should be".
It is the aspect of economics that is concerned with human welfare.
It answers the question "what should be". Examples of normative statements:
The level of duty on petrol is too unfair and unfairly penalizes the motorists.
The government is right to introduce a ban on smoking in public places. Four Basic Economics Questions 1. What to produce? An economy must identify what are the commodities needed to be produced for the utilization of the society in everyday life. 2. How to produce? There is a need to identify the different methods and techniques in order to produce commodities. 3. How much to produce? This identifies the number of commodities needed to be produced in order to answer the demand of the society. 4. For whom to produce? This question identifies the people or sectors who demand the commodities produced in a society. Relationship of Economics
to other Sciences Business Management History Finance Physics Sociology Psychology
provides employment. The history of economic ideas provides
theories that can be revisited in order to evaluate present and future economic issues. Innovations and output brought about by physics greatly affect the study of economics. A country's economic activity speeds up through inventions and technological advancements. Money and Finance are important in the study of economics. Sociology is the study of the behavior of societies. Psychology is the study of the behavior of man. Importance of Studying Economics 1. To understand the Society
Economic seeks to analyze transactions made by the society and its members, particularly with regard to details on their behavior and decision making. 2. To understand Global Affairs
Economics measures the competitiveness of each country and identifies its comparative advantages in relation to other states. 3. To be an Informed Voter
Knowledge of economics provides individuals with an understanding of economics policies that apt for the state's current situation. 3 Es in Economics Efficiency
This refers to productivity and proper allocation of economics resources.
Being efficient in the production and allocation of goods and services saves time, money, and increases a company's output. Equity
means justice and fairness Effectiveness
means attainment of goals and objectives Important Economic Terms Wealth
Refers to anything that has a functional value which can be traded for goods and services. Consumption
This refers to the direct utilization or usage of the available goods and services by the buyer or the consumer sector. Production
It is defined as the formation by firms of an output (product or services).
It is the combination of land, labor and capital in order to produce outputs of goods and services. Exchange
This is the process of trading goods and/or services for money and/or its equivalent. Distribution
This is the process of allocating or apportioning scarce resources to be utilized by the household, the business sector, and the rest of the world. Microeconomics and Macroeconomics Microeconomics is a branch of economics which deals with the individuals decisions of units of the economy -- firms and households, and how their choices determine relative prices of goods and factors of production.
It concerns how a firm maximizes its profits, and how a consumer maximizes his/her satisfaction. Macroeconomics is a branch of economics that studies the relationship among broad economic aggregates like national income, national output, money supply, etc.
The term macro, in contrast to micro, implies that it seeks to understand the behavior of the economy as a whole. OPPORTUNITY COST It refers to the foregone value of the next best alternative.
It is the value of what is given-up when one makes a choice. Factors of Production Land
This refers to all natural resources, which are given by, and found in nature, and are, therefore, not man made.
It can sometimes be classified as a fixed resource.
The compensation for use of land is called rent. Labor
Any form of human effort exerted in the production of goods and services.
It covers a wide range of skills, abilities, and characteristics.
It includes factory workers who are engaged in manual work.
It can also refer to an accountant, economist, nurse, typist, and other workers and professionals. Capital
It is a man-made goods used in the production of other goods and services.
It includes buildings, machinery, and other physical facilities used in production process. Entrepreneurship
An entrepreneur is a person who organizes, manages and assumes the risk of a firm, taking a new idea or a new product and turning it into a successful business.
Entrepreneurs possesses managerial skills needed in building, operating, and expanding a business. The Circular Flow Model Households
(Consumers) Economic Resources
(Land, Labor, Capital) Firms
(Producers) Output of goods
and services Basic Decisions Problems Consumption
Members of society, with their individuals wants, determine what types of goods or services they want to utilize or consume, and the corresponding amounts thereof that they should purchase and utilize.
Consumption is the basic decision problem that the consumers must always deal with in their day to day activities. Production
The problem of production is generally a concern of producers.
They determine the needs, wants, and demands of consumers, and decide how to allocate their resources to meet these demands. Distribution
This problem addressed to the government.
There must be proper allocation of all the resources for the benefit of the whole society. Growth over Time
This is the last basic decision problem that a society or nation must deal with.
Societies continue to live on. They also grow in numbers. Types of Economic Systems Traditional Economy
It is basically a subsistence economy.
A family produces goods only for its own consumption. Command Economy
It is a type of economy, wherein the manner of production is dictated by the government.
The government decides on what, how, how much, and for whom to produce.
It is an economic system characterized by collective ownership of most resources, and the existence of a central planning agency of the state. Market Economy
Also called Capitalism.
Its basic characteristic is that the resources are privately owned, and that the people themselves make the decisions.
It is an economic system wherein most economic decisions and means of production are made by the private owners (capitalist). Socialism
Is an economic system wherein key enterprises are owned by the state. Mixed Economy
This economy is a mixture of market system and the command system. end of chapter 1...