Chapter 1

Introduction to Economics

Chapter 1

Introduction to Economics

Economics
is a social science that deals
with the efficient allocation of scarce
resource to satisfy human unlimited
needs and wants.
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Chapter 1

Introduction to Economics

Economics
is the study of choice under the
condition of scarcity.

Chapter 1

Introduction to Economics

Two Main Activities in the Economy

1.Production
- the art of producing something
2.Consumption
- the art of consuming something
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Chapter 1

Introduction to Economics

Goals of Economics
1.To strengthen economic freedom.
2.To promote economic efficiency.
3.To promote economic stability
4.To promote economic security
5.To attain a high level of growth in the
economy.
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Chapter 1

Introduction to Economics

Relationship with other social sciences

1.Anthropology
2.Political Science
3.Sociology
4.Psychology
5.History
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Chapter 1

Introduction to Economics

Two Main Branches of Economics

1.Microeconomics
- the study of the behavior of
individual households, firms, and
government, the choices they make and
their interaction in specific markets and
individuals
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Chapter 1

Introduction to Economics

Two Main Branches of Economics

2.Macroeconomics
- The study of the economy as a
whole.

Chapter 1

Introduction to Economics

Scientific Methodologies of Economics

1. Normative Economics
- The study of what should be; it is
used to make value judgments, identify
problems, and prescribe solutions.

Chapter 1

Introduction to Economics

Scientific Methodologies of Economics

2.Positive Economics
- The study of what is, of how the
economy works.

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Chapter 1

Introduction to Economics

Adam Smith (1723 1790)

Father of Economics
An Inquiry in the Nature and Causes
of the Wealth of Nations, 1776 (900page economic treatise)
Believes in the division of labor,
harmony of interest and limited
government.
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Chapter 1

Introduction to Economics

Adam Smith (1723 1790)

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Chapter 1

Introduction to Economics

John Maynard Keynes (1883 1946)

Father of Macroeconomics
The General Theory of Employment,
Interest and Money, 1938
Believes in government intervention

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Chapter 1

Introduction to Economics

John Maynard Keynes (1883 1946)

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Chapter 1

Introduction to Economics

Milton Friedman (July 31, 1912 November 16, 2006)

A Theory of the Consumption
Function, 1957
Nobel-prize winning economist
Optimizing behavior
Rejection of Keynesianism
Believes in limited government
intervention
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Chapter 1

Introduction to Economics

Milton Friedman (July 31, 1912 November 16, 2006)

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Chapter 1

Introduction to Economics

Two Fundamental Assumptions in

Economics
Fundamental Assumption # 1:
Every economic decision maker tries
to make the best out of any situation.
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Chapter 1

Introduction to Economics

Two Fundamental Assumptions in

Economics
Fundamental Assumption # 2:
Every economic decision maker faces
constraints.
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Chapter 1

Introduction to Economics

The Eight Basic Principles of Economics

Maximization Subject to Constraints
Opportunity Cost
Specialization and Exchange
Markets and Equilibrium
Short-run versus Long-run

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Chapter 1

Introduction to Economics

The Eight Basic Principles of Economics

Marginal Decision Making
Policy Tradeoffs
The Importance of Real Values

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End of Presentation

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