Introduction to Economics

1. Introduction to Economics

2. What is Economics? • Economics is the social science that analyzes the production, distribution, and  consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία (oikonomia, "management of a household, administration") from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current economic models emerged from the broader field of political economy in the late 19th century. • Economics aims to explain how economies work and how economic agents interact. Economic analysis is applied throughout society, in business, finance and government, but also in crime, education, the family, health, law, politics, religion,social institutions, war, and science. At the turn of the 21st century, the expanding domain of economics in the social sciences has been described as economic imperialism.

3. What is Economics? Economics covers all kinds of topics. At the core it is devoted to understanding how society allocates its scarce resources. Along the way to studying the implicationof scarcity, economics tries to figure out the 1001 puzzles of everyday life.

4. Definitions of Economics 1) Economics asks what goods are produced, how these goods are produced, and for whom they are produced. 2) Economics analyzes movements in the overall economy --- trends in prices, output, unemployment and foreign trade.

5. Once such trends are understood, economics helps to develop the policies by which Governments can improve the performance of the economy 3) Economics is the study of commerce among nations. It helps explain why nations export some goods and import others, and analyses the effects of putting economic barriers at national frontiers.

6. 4) Economics is the science of choice. It studies how people choose to use scarceor limited productive resources (labour, equipment, technical knowledge) to producevarious commodities and to distribute thesegoods for consumption 5) Economics is the study of money, banking,capital and wealth.

7. In a common theme Economics is the study of how societiesuse scarce resource to produce valuable commodities and distribute them among different people.

8. Economics We distinguish two types of Economics Micro Economics Macro Economics

9. Micro Economics It analyses the behavior of individual components like industries, firms and households. Micro Economics means economics through microscope. How individual prices are set, consider whatdetermines price of land, labor and capital, andinquire in to the strengths and weaknesses of the market mechanism.

10. Macro Economics It studies the functioning of the economy as a whole. we examine the economy through wide-lens. It examines how the level and growth of outputare determined, analyzes inflation and unemployment, asks about the total money supplyand investigates why some nations thrive while others stagnate.

11. The scientific Approach Economists have no monopoly on the truth aboutthe important issues of the day. Indeed, many phenomena are poorly understood and highlycontroversial. But economists and otherscientists have developed techniques- called thescientific approach- that give a head start inunderstanding the complex forces that affecteconomic growth, prices and wages, incomedistribution and foreign trade.

12. Scientific Approach Observation Economics Analysis Statistical Analysis Experiments

13. Observation One of the major sources of economic knowledge is observation of economicaffairs, especially drawing upon thehistorical record.e.g. consider inflation- meaning a rise in the general level of prices. Citizens, bankers and political leaders often worry about inflation and take painful steps, contradicting output and increasing unemployment, to prevent or slow a threatening inflation.

14. Economic Analysis This is an approach that starts with a set of assumptions and then deduces logically certain predictions about the economic behavior of people,firms or the overall economy e.g. Attempts to restrict the import of foreign goods in order to ‘protect’ domestic workers and firms from foreign competition.

15. Statistical Analysis A complete understanding of economic activity relies upon the use of economic data and statistical analysis. Governments and businesses issue volumes of data that can help us to analyze economic behaviorquantitatively. While the actual application of such information requires advanced tools in probability and econometrics, understanding the results requires only careful reading and common sense.

16. Experiments The economic world is enormously complicated with millions people and billionsof prices. In an exciting new development, economists are turning to laboratory and other controlled experiments.

17. It is more difficult to perform experiments in economies than in the laboratory sciences. To begin with, economists cannot measure economic variables with precision that physical scientists can apply in measuring mass, velocity, or distance Moreover it is very difficult to replicate the economy in a laboratory.

18. Pitfalls in Economic Reasoning In all areas of economics, old and new, certain pitfalls lie in the path of the serious economist. Falling to keep “others Things Equal” The Post Hoc Fallacy Fallacy of Composition

19. others Things Equal Most of economic problems involve several forces interacting at the same e.g. the number of cars bought in a given year is determined by the price of cars, consumer incomes, gasoline prices etc. How can we isolate the impact on car sales of a single variable such as the price of gasoline.

20. The Post Hoc Fallacy A common mistake in studies of cause-and-effectrelationships is the Post Hoc Fallacye.g. Dr. Optimist’s observation is that after the Govt. has cut tax rates, the Govt. total tax revenuesbegan to rise. Dr. Optimist then claims “Aha, if we lower the tax rates, we will rise revenues and reducethe budget deficit.”

21. Dr. Optimist fallacy was to assume that the tax cut was responsible for the increase in Govt.s revenues; overlooked was the fact thatthe growing economy was raising people’s income and might have increased tax revenues even more had taxes not been cut.

22. Fallacy of Composition It is the misconception that what is true for a part is therefore true for the whole. One thing that is true for an individual is not necessarily true for everyone e.g. If all farmers produce a bog crop, total farm income will probably fall.

23. The Law of Scarcity Economics study the way goods are produced and consumed because people wantto consume far more than an economy canproduce. The law of scarcity states that goods are scarcebecause there are not enough resources to produceall the goods that people want to consume. All of economics flows from this central fact.

24. No country has reached utopia of limitless possibilities. Goods are limited while wants seem infinite. Even in U.S., the most productive economy ever known, productionis not high enough to meet everyone’sdesires.

25. The uses of Economics Economic knowledge serves us in managing our personal lives, in understanding society and in improving the world around us. The ways that economics can help us individually will be as different as are ourpersonal lives.

26. Learning about stock market may help people manage their own finances. Better awareness of the determinants of cost and revenue will produce better businessdecisions. The doctor, the investor and the farmer allneed to know about profit from their businesses.

27. thanks These lectures are available at following group home page: www.groups.yahoo.com/group/bm_mancam GroupName: bm_mancam GroupEmail: bm_mancam@yahoogroups.com