 Brandches of Economics

o Two branches of Economics

 MacroEeconomics
 The study of economy - wide phenomena (inflation,
unemployment, economic growth)
 MicroEconomics
 The study of how buyers and sellers make decisions and how
they interact in market
o Approach in Economics
 Positive analysis
 Factual analysis
 No personal judgement involved
 Can be tested, can be proven or disproven
 Normative analysis
 Opinion - based analysis
 Involves personal judgement or ideals
 Cannot be proven or disproven
o Model
 Qualitative method
 Quantitive method
 Economic models
 A simplified version of reality that allow us to observe,
understand, make predictions about economic behavior
 Includes: theory, assumption, equation, data
 Economists disagree
o Different assumptions
o Different opinions, value judgements, normative views
about what policy should try to accomplish
 Economists play roles
o Scientists
 trying to explain the world
o Policy advisors
 trying to help improve the world
 Ten principles of Economics
o How people make decisions?
 People face trade - offs
 The cost of sth is what you give up to get it
 Rational people think at the margin
 People respond to incentives
o How people interact?
 Trade can make everyone better off
 Markets are usually a good way to organize economic activity
 Governments can sometimes improve market outcomes
o How the economy as a whole works?
 A country's standard of living depends on its ability to produce GAS
 Prices rise when the government prints too much money
 Society faces a short - run trade - off between inflation and
unemployment
 What is Economics?
o Definition
 Economics is the study of how society manages its scare resources
o Economic problem
 Using limited resources to satisfy unlimited wants
 Economic agents
 Government
 Firm
 Household/Individual
 What is Scarcity?
 The limited nature of society's resources
o Choose which of wants to satisfy
o Trade - offs
 Economic resources
 Land
o Nature resources
o Raw materials
 Labor
o Human services
o Physical or intellectual
 Capital
o Equipments
o Machines
o Factories
 Entrepreneurial ability
o Combine all resources into the production of GAS
o Revenue - Cost
o Decisions of threee agents
 Types of markets
 Markets for goods and services
 Markets for factors of production
 Financial markets
 Basic questions of Economics
 What to produce?
 How to produce?
 For whom to produce?
o Economic systems
 Command economy
 The Government or central authority
 Market economy
 Businesses and consumers
 Law of supply and demand
 Mixed economy
 Combine
 Government takes care of people's needs
 Marketplace take care of people's want