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Economics
Introducing Economics
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LEARNING OUTCOMES
At the end of this topic you should be ableto:
Explain why it is important to learn Economics
as a subject Describe basic concepts in Economics
Illustrate how factor market and, goods andservices market interact
Explain the concept of Production possibilityfrontier
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INTRODUCING ECONOMICS
What do economists study?
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WHAT DO ECONOMISTS
STUDY?
Economic problems
production and consumption
Scarcity: the central economic problem
defining scarcity
use of resources (factors of production) labour
land and raw materials
capital
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WHAT DO ECONOMISTS
STUDY?
Demand and supply
actual and potential demand and supply
the role of firms in satisfying demand
Dividing up the subject
microeconomics
macroeconomics
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Which one of the following is amicroeconomic issue?
A. The government spends more
than it receives in tax revenue.
B. House prices rise more rapidly.
C. Unemployment rises.
D. The Bank of England raisesinterest rates.
E. Imports exceed exports.
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WHAT DO ECONOMISTS
STUDY?
Microeconomic issues
choices: what, how and for whom
the concept of opportunity cost
rational economic decision making
marginal costs and marginal benefits
MC < MB do more
MC > MB do less
microeconomic objectives
efficiency
equity
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WHAT DO ECONOMISTS
STUDY?
Aggregate demand and supply
Macroeconomic issues
the objective of economic growth
cyclical fluctuations in the economy
recessions
unemployment
inflation
balance of trade deficits
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Assume that a firm can produce6 units of good X or 12 units of good Yper hour with its current resources.The opportunity cost of a unit of X is:
A. 72 units of Y
B. 12 units of Y
C. 6 units of Y
D. 2 units of Y
E. unit of Y
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WHAT DO ECONOMISTS
STUDY?
The circular flow of income
firms and households
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WHAT DO ECONOMISTS
STUDY?
The circular flow of income
firms and households
real and money flows
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WHAT DO ECONOMISTS
STUDY?
The circular flow of income
firms and households
real and money flows
goods and factor markets
Th l fl f d d
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The circular flow of goods and incomes
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WHAT DO ECONOMISTS
STUDY?
The circular flow of income
firms and households
real and money flows
goods and factor markets
macroeconomics: the total flows
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A. Wages earned by workers in afactory.
B. Rent received by landowners.
C. A machine sold by a firm.
D. Profits earned by businesspeople.
E. Salaries earned by lecturers.
Which one of the following does NOT
represent a flow of income earnedby factors of production?
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0
1
2
3
4
5
6
7
8
0 1 2 3 4 5 6 7 8Units of clothing (millions)
Unitsoffood
(millions)
Units of food Units of clothing(millions) (millions)
8m 0.07m 2.2m6m 4.0m5m 5.0m4m 5.6m
3m 6.0m2m 6.4m1m 6.7m0 7.0m
A Production Possibility Curve
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WHAT DO ECONOMISTS
STUDY?
The production possibility curve
what the curve shows
microeconomics and the production possibilitycurve:
choices and opportunity cost
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Unitsoffood
(millions)
x
y1
1
0
1
2
3
4
5
6
7
8
0 1 2 3 4 5 6 7 8
A Production Possibility Curve
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WHAT DO ECONOMISTS
STUDY?
The production possibility curve
what the curve shows
microeconomics and the production possibilitycurve:
choices and opportunity cost
increasing opportunity cost
A P d i P ibili C
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21/31Units of clothing (millions)
Unitsoffood
(millions)
x
y1
1
z1
2
0
1
2
3
4
5
6
7
8
0 1 2 3 4 5 6 7 8
A Production Possibility Curve
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WHAT DO ECONOMISTS
STUDY?
The production possibility curve
what the curve shows
microeconomics and the production possibilitycurve:
choices and opportunity cost
increasing opportunity cost
macroeconomics and the production possibilitycurve:
production within the curve
k ll f
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v
x
y
O
Making a Fuller Use of Resources
F
ood
Clothing
Production insidethe production
possibility curve
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G h i P i l O
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O
Growth in Potential Output
F
ood
Clothing
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Which of the following would shift thep.p. curve outwards?
A. An increase in the population of
working age.B. A reduction in unemployment.
C. A reduction in VAT.
D. An increase in the general level ofprices.
E. A reduction in expenditure on
education.
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POSITIVE Vs NORMATIVE
Positive Economics Economist as a scientists
attempt to describe the world as it is
Normative Economics Economist as policyadvisor
attempt to prescribe how the world should be
THE NATURE OF ECONOMIC
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THE NATURE OF ECONOMIC
REASONING
Economics as a science
models in economics
building models
using models
assessing models
Economics as a social science difficulties in conducting controlled
experiments in many parts of the subject
problems of predicting human behaviour
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