1
Defnition of
Economics
It is the study of wealth (Adam smith)
Or
It is the study of welfare (Pegout)
Or it is
A study of exchange and production
2
The standard defnition
!conomics is the social science which examines
how people choose to use its limited or scarce
resources in attempting to satisfy their
unlimited wants
3
Branches of
Economics
!conomics is usually di"ided
into two main #ranches
1$ %icroeconomics
&$ %acroeconomics
4
Microeconomics
which examines the economic #eha"iour of
indi"idual actors such as #usinesses' households'
and indi"iduals' with a "iew to understand
decision ma(ing in the face of scarcity and the
allocation conse)uences of these decisions$
5
%acroeconomics
which examines an economy as a whole with a
"iew to understanding the interaction
#etween economic aggregates such as
national income' employment and in*ation$
6
Other topics includes
international economics' la#our economics'
welfare economics' information economics'
resource economics' en"ironmental economics'
managerial economics' fnancial economics'
ur#an economics' de"elopment economics'
and economic geography$
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+hy we study economics
The production
possi#ility frontier
cur"e has a negati"e
slope' which indicates
a trade<o- #etween
producing one good
or another$
The Production Possi#ility
6rontier
At point H, resources
are either unemployed,
or are used
inefficiently.
The Production Possi#ility
6rontier
Point F is desira#le
#ecause it yields
more of #oth goods'
#ut it is not attaina#le
gi"en the amount
of resources a"aila#le
in the economy$
The Production Possi#ility
6rontier
%o$ is it produced'
Land
Labor
Capital
.carcity' Choice' and
Opportunity Cost
A grap is a two<dimensional
representation of a set of
num#ers or data$
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A time series
grap shows
how a single
"aria#le
changes o"er
time$
Total isposa!le "ersonal #ncome in
the $nited %tates& 1975'2002 (in
!illions of dollars)
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
1975 1980 1985 1990 1995 2000
*ear
T
o
t
a
l
d
i
s
p
o
s
a
!
l
e
p
e
r
s
o
n
a
l
i
n
c
o
m
e
,ow to 3ead and Anderstand
Braphs
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,ow to 3ead and Anderstand
Braphs
The point at +hich the line The point at +hich the line
intersects the *'a,is (point intersects the *'a,is (point a a) )
is called the is called the Y-intercept Y-intercept . .
Y
X
Y Y
X X
=
1 0
1 0
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