ECONOMICS 1 (The Scope)

8/6/2019 ECONOMICS 1 (The Scope)

http://slidepdf.com/reader/full/economics-1-the-scope 1/13

Copyright © 2009 Pearson Education, Inc. All rights reserved. 1

Introduction




The Scope

� Resources ² The land, labor, raw materials, andmachinery used to produce goods and services.

� Scarcity ² The fundamental economic problem thatavailable resources are insufficient to satisfy humandesires for goods and services.

� Microeconomics ² The study of the behavior of individual economic decision-makers, such ashouseholds, businesses, and governments.

� Market ² The coming together of buyers and sellerswith the potential of exchanging goods or services.

� Macroeconomics ² The study of the overall level of economic activity in an entire economy, such as thelevel of output, unemployment, inflation, and growth.

What Is Economics?




A Fundamental Problem

The Scope

� Opportunity Cost ² The economic cost of

undertaking any action; equal to the value of the best

alternative action sacrificed.





� Resource Allocation ² How society decides to

distribute its scarce resources, in terms of what goods

and services to produce, how to produce them, and for whom to produce them.

� The problem of resource allocation can be summarized

by these three questions:

1. What goods and services will be produced?

2. How will these goods and services be produced?

3. Who will get these goods and services?

4. Growth overtime

The Scope




� Command System ² An economic system that solves the

problem of resource allocation by having the government tell

households and firms what goods to produce, how to produce

them, and for whom to produce them.

� Traditional System ² An economic system that solves the

problem of resource allocation by having households and firms

produce and distribute goods the way they¶ve been produced and

distributed in the past.

� Market System ² An economic system that solves the problem of

resource allocation by permitting households and firms to pursue

their own self-interests and make individual decisions.

The Scope





� Economics can help us understand how theworld works, and solve problems faced byindividuals, families, firms, communities, andnations.

� Economics provides insights into possiblesolutions to many types of social problems.

The Scope

The Uses of economics



7

The Methods

� Model ² A simplified and abstract representation

of the real world.

Copyright © 2009 Pearson Education, Inc. All rights reserved.

Models




The Methods

�Econometrics ² The branch of economics specializing in

the use of statistical techniques to test the validity of

economic models.

Models



9

Basic Principles

� Economic Agent ² A single decision-making unit, suchas an individual consumer, a business firm, or agovernment.


Economic Agents

� Product Market ² The coming together of economic

agents to buy and sell goods and services.

� Factor Market ² The coming together of households

and other economic agents so that the households can

sell their control over resources such as land, labor, andcapital to the other economic agents.

� Asset Market ² The coming together of economic

agents to buy and sell valuable assets, such as stocks

and bonds, among themselves.

Markets



10

� Local Market ² A market restricted to a

limited geographic area.

Basic Principles


Markets

� Global Market ² A market unrestricted to a

limited geographic area.

Local Markets

Global Markets




� Equilibrium ² A situation in which every

economic agent is doing the best it can, and,

therefore, no economic agent wants to changeits behavior. In a game, a strategy combination

consisting of the best strategy for each player.

� Market Structur e ² The number and size

distribution of the economic agents in a market.

Basic Principles

Equilibrium




� Inefficient ² A situation in which there¶s a way of reallocating resources to make at least one person better off without making anyone else worse off.

� Efficient ² A situation in which it¶s impossible toreallocate resources to make at least one person better off without making someone else worse off.

� Par eto Improvement ² A reallocation of goods or services that makes at least one person better off withoutmaking anyone else worse off.

� Par eto Efficiency ² An allocation of goods and servicesin which it¶s impossible to reallocate the goods andservices in a way that makes anyone better off without

making someone else worse off.

Basic Principles

Efficiency




� Positive Economic Analysis ² The study of whatwas, what is and what will be. It Uses economicmodels to predict the actual consequences of actions.

� Normative Economic Analysis ² The study of what should or ought to be, requiring the use of value judgments to determine whether the predicted

outcomes of economic actions are positive or negative.

� Social Optimum ² A normative state in whichsociety is as well off as possible.

Basic Principles

Positive ver sus Normative Economic Analysis

Date post:	07-Apr-2018
Category:	Documents
Upload:	donna-mariel-calimpong
View:	220 times
Download:	1 times

ECONOMICS 1 (The Scope)

Documents