Roadmap for Economics

What is Economics? The Social Science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human material wants.

Economics …studies the allocation of scarce resources in response to unlimited wants. …is about choice. Society is forced to choose because resources are scarce. Society is forced to choose because resources are scarce.

Economics for Citizenship √ Economics for Citizenship Well informed citizens will vote intelligently Well informed citizens will vote intelligently Well informed politicians will choose wisely among alternatives Well informed politicians will choose wisely among alternatives Professional and Personal Application √ Professional and Personal Application Businessmen need an understanding of economy Businessmen need an understanding of economy Problems are examined from social rather than personal viewpoint Problems are examined from social rather than personal viewpoint Why Study Economics?

Scarcity and Choice Scarcity and Choice Rational Behavior Rational Behavior Marginal Thinking: Costs and Benefits Marginal Thinking: Costs and Benefits The Economic Perspective …is a unique way of thinking about economic issues …is a unique way of thinking about economic issues

Scarcity

Scarcity - When There Is Not Enough For Everyone – Someone Suffers

Theories Facts Policy Economics Theoretical Economics Economic Way of Thinking

Descriptive Economics √ Based on facts —observable and verifiable behavior of certain data or subject matter √ Economists examine behavior of individuals and institutions engaged in the production, exchange, and consumption of goods and services. Economic Way of Thinking

√ Task of analysis is to systematically arrange, interpret, and generalize upon facts √ Principles and theories bring order and meaning to facts by tying them together, putting them in correct relationship to one another and generalizing. √ Principles are expressed as the tendencies of typical, or average consumers, workers, or business firms Economic Way of Thinking Economic Principles (laws, models)

√ Three Generalizations: “Other things equal” assumption —controlling all variables except one “Other things equal” assumption —controlling all variables except one Abstractions—do not mirror the complexity of real world Abstractions—do not mirror the complexity of real world Graphic Expressions—models used to show theory Graphic Expressions—models used to show theory Economic Way of Thinking Economic Principles (laws, models)

Economic Way of Thinking

√ Applied Economics that recognizes the principles and data which can be used to formulate policies. √ Determining a course of action to resolve a problem or to further a nation’s economic goals. Economic Way of Thinking Policy Economics

The Economic Landscape Macroeconomics: looks at economy as a whole and its basic subdivisions such as government, business and households. Macro looks at totals or aggregates to examine the “big picture”. Microeconomics: looks at specific units or segments of the economy, a particular firm, household or the government. Micro looks at the “trees not the forest”.

NORMATIVE Economics… involves value judgments. It is concerned with HOW IT SHOULD BE! ECONOMIC GOALS POSITIVE Economics… collects and presents facts. It avoids value judgments Positive economics concerns WHAT IS — what the economy is really like.

Economic Goals Economic Growth Balance of Trade Economic Security Equitable Distribution Economic Freedom Price-Level Stability Economic Efficiency Full Employment

Three Basic Questions 1. What? What goods and services will be produced and offered for sale, and in what quantities?

Three Basic Questions 2. How? How will the goods and services be produced?

Three Basic Questions 3. For Whom? Who will consume the goods and services which are produced?

Two Primary Economic Objectives è Equity-fairness è Efficiency-best use

4Technological or productive efficiency: getting the greatest quantity of output from the resources that are being used —least cost! 4 Allocative efficiency: choosing the most valuable mix of outputs to produce—what society wants! Efficiency

The Spectrum of Economic Systems CommandandControlLaissez-Faire Free Markets Mixed

“The Invisible Hand” Adam Smith described in The Wealth of Nations, how the invisible hand of the marketplace leads the economy to produce an efficient variety of goods and services, with efficient production methods as well.