ECN 200: Introduction to Economics Nusrat Jahan Lecture-1

1. ECN 200: Introduction to Economics NusratJahan Lecture-1 Important Concepts in Economics

2. What is Economics? Economics studies how scares resources can be efficiently used to achieve maximum satisfaction of human needs. • There are two branches of Economics- • Economics can also be classified in two other branches • Positive Economics: Positive economics focuses on facts and cause-and-effect relationships. It describes the facts of an economy that is, what the economy is actually like e.g. minimum wage increases unemployment. • Normative Economics: Normative economics involves value judgments about what the economy should be like e.g. minimum wage should raised.

3. Mankiw’s Ten Principles • Principle 1 : People Face Trade-offs • Principle 2 : The Cost of Something is What You Give Up to Get It-> Opportunity Cost • Principle 3 : Rational People Think at the Margin-> Marginal Benefit= Marginal Cost • Principle 4 : People Respond to Incentives • Principle 5 : Trade Can Make Everyone Better Off • Principle 6 : Markets Are Usually a Good Way to Organize Economic Activity • Principle 7 : Governments Can Sometimes Improve Market Outcomes -> Property Rights – The ability of an individual to own and Exercise control over scares resources. • -> Market failure – A situation in which a market left on its own fails to allocate resources efficiently. • -> Externality – The impact of one person’s action on the well- being of a bystander. • Principle 8 : A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services. • Principle 9 : Prices Rise When Government Prints Too Much Money • Principle 10 : Society Faces a Short-Run Trade-Off between Inflation and Unemployment.

4. Production Possibilities Frontier and Opportunity Cost • Opportunity Cost: The opportunity cost of an item is what you give up to get that item. Production Possibilities Frontier: A graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology that firms can use to turn these factors into output.

5. Efficiency:Efficiency means economy’s resources are being used as effectively as possible. It is the using of resources in such a way as to maximize the production of goods and services. • Marginalism: When making decision, one should consider the additional cost and benefits that will arise from that decision. • Marginal Benefit: Additional benefit from consuming/producing one extra unit of a good. • Marginal Cost: Additional cost from consuming/producing one extra unit of a good. • A Rational decision maker takes an action if and only if the marginal benefit of the action exceeds the marginal cost associated with it.