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1 - Introduction To Economics
1 - Introduction To Economics
What is Economics?
Economics is the study of how societies use scarce
thing.
Food v. clothing
Leisure time v. work
Efficiency v. equity
alternatives.
Whether to go to college or to work?
Whether to study or go out on a date?
Whether to go to class or sleep in?
The opportunity cost of an item is what you give up to
people to respond.
The decision to choose one alternative over another
Problem # 1
Describe some of the trade-offs faced by following:
1.
2.
activity.
Governments can sometimes improve economic
outcomes.
another.
Competition results in gains from trading.
Trade allows people to specialize in what they do
best.
production:
The number of hours required to produce a unit of
output
The opportunity cost of sacrificing one good for
another.
Absolute Advantage
The comparison among producers of a good
CS 101
HS 101
Mala
1 Hour
2 Hrs
Manasi
2 Hrs
3 Hrs
what to buy and sell, they unknowingly take into account the
social costs of their actions.
As a result, prices guide decision makers to reach outcomes that
tend to maximize the welfare of society as a whole.
resources efficiently.
When the market fails (breaks down) government can
unemployment.
economy.
One cause of inflation is the growth in the quantity of money.
When the government creates large quantities of money, the
Principle #10: Society Faces a Short-run Tradeoff between Inflation and Unemployment.
The Phillips Curve illustrates the trade-off between inflation
and unemployment:
Inflation or Unemployment
Its a short-run trade-off!
The trade-off plays a key role in the analysis of the business
Economist as an scientist
Scientific method: observation, theory, and more observation
Role of assumptions
Economic models
to understand.
The art in scientific thinking is deciding which assumptions to
make.
Economists use different assumptions to answer different
questions.
Economic Models
Economists use models to simplify reality in order to
Households
Firms
Flow of Money
3,000
C
A
2,200
2,000
B
Production
possibilities
frontier
1,000
300
600 700
1,000
Quantity of
Cars Produced
3,000
2,300
2,200
G
A
600 650
of
1,000 CarsQuantity
Produced
Problem # 2
Classify the following topics as relating to microeconomics or
macroeconomics.
A workers decision to work or take care of her ill mother.
The effect of government spending on nations unemployment
rate.
The optimal choice of output for a firm that produces mobile
handsets.
Effect of Rashtriya Swasthya BimaYojana (RSBY) on households
world as it is.
Normative statements are statements about how the world
should be.
Problem # 3
Classify statements as positive or normative.
An increase in the minimum wage will increase the rate of
teenage unemployment
The government should raise the tax on tobacco to reduce the
investment
Economic Systems
Market economy
Command economy
Mixed economy
References
Samuelson P.A. and W.D. Nordhaus. 2010. Economics (19th Ed.)