Lecture 1

READING MATERIAL

• Sloman
– Ch.1 (ALL)
 WHAT DO ECONOMISTS STUDY?

The word economics is derived from the Greek “oikomamia”

which means managing the house

“social science is concerned with the description and analysis of

production, distribution and consumption of goods and services”
Webster’s Dictionary

utilise productive resources (land, labour, capital)

• to produce goods and services

• which are distributed to population

THE NATURE OF ECONOMIC REASONING

• Economics as a science
– models in economics
– building models
– using models
– assessing models
• Economics as a social science
– impossibility of conducting controlled
experiments
– problems of predicting human behaviour
 SCARCITY

Unlimited Wants
 SCARCITY

Unlimited Wants Limited Resources

Economic problem is how to allocate these

limited resources to satisfy as many wants as possible
 SCARCITY

“We have 50 per cent of the world’s wealth but

only 6.3 per cent of the world’s population. In this
situation our real job in the coming period….. is
to maintain this position of disparity.

To do so we have to dispense with all

sentimentality……….. we should cease thinking
about human rights, the raising of living
standards and democratisation.”

- George Kennan, US Strategic planner, 1948.

 WHAT DO ECONOMISTS STUDY?

Some fundamental (micro)economic questions “market”

interaction of D & S
• what to produce ?

• how, when and where to produce? production = Supply

• who is it produced for? consumption = Demand

 ECONOMIC SYSTEMS

• Classifying economic systems

• The command economy
– features of a command economy
 Communism

• The free-market economy

What is a market?
ECONOMIC SYSTEMS
What is a market?
 ECONOMIC SYSTEMS
What is a market?

A market is a “process” that co-ordinates

• buying (demand), and co-ordination mechanism

• selling (supply)

monetary ($) value = price

does not have to be a physical location
• e.g fruit market

• notice board (secondhand textbooks) • barter

• telephone or internet • quotas / coupons
• classifieds / yellow pages • bribery / corruption
 ECONOMIC
Some SYSTEMS
dimensions of markets

Time Minute / Hour / Day / Week …………..

Spot or Futures

Space University / Birmingham / UK / EU / World

Product Hot Chips / Fast Food / Food

degree of substitutability
SOME TECHNIQUES OF ECONOMIC ANALYSIS

• Use of diagrams in economics

• Representing statistics
– Time-series data
– Cross-section data
• Getting a true picture from statistics
– graphical presentation
– absolute and proportional values
– real and nominal values
• Functional relationships
– simple linear functions
– non-linear functions
 DIFFERENTIATION

• Elementary differentiation: the rules

• Finding the maximum or minimum point of
a curve
– differentiating the equation
– setting it equal to zero
• Is it a maximum or a minimum?
– differentiating a second time
– the second derivative test