Introduction to Economics &

History of Economics

Instructor: Sayed Kashif Ali

Definition of Economics
 Using the words I have written on the
board, how would you define Economics?

?
Instructor: Sayed Kashif Ali
Economics as defined
From the Greek words Oikos meaning
household and nomos meaning management
= household management

ECONOMICS

The wise production and use of wealth to

meet the demands or needs of the
people

Instructor: Sayed Kashif Ali

Common words among
definitions…
 Scarcity- a situation wherein the amount of something
available is insufficient to satisfy the desire for it.
 Resources-The labor, capital, land and natural resources
and entrepreneurship that are used to produce goods
and services.
 Unlimited – without limits, infinite
 Needs: basic necessities of man. food, shelter, cloth
 Wants –desires
 Demand-- is the quantity of a good that consumers are
willing and able to purchase.
Instructor: Sayed Kashif Ali
Economics
 ECONOMICS – is a social science
Economics is the social science that studies the
production, distribution, and consumption of goods
and services.
Adam smith: “Economics is science of wealth”

o It deals with how people organize themselves in

order to allocate scarce resources in order to produce
goods and services that will satisfy the unlimited and
multiplying wants and needs of man.
Instructor: Sayed Kashif Ali
Positive vs. Normative Economics:
What's the Difference?
Positive economics and 
normative economics are two standard
branches of modern economics.
Positive economics describes and
explains various economic
phenomena,
• while normative economics focuses
on the value of economic fairness or
what the economy should be.

Instructor: Sayed Kashif Ali

•Positive economics describes and explains various economic
phenomena or the "what is" scenario.
•Normative economics focuses on the value of economic
fairness, or what the economy "should be" or "ought to be."
• Here's an example of a positive economic statement:
"Government-provided healthcare increases public
expenditures." This statement is fact-based and has no value
judgment attached to it. Its validity can be proven (or
disproven) by studying healthcare spending where
governments provide healthcare.

• An example of a normative economic statement is: "The

government should provide basic healthcare to all citizens." As
you can deduce from this statement, it is value-based, rooted
in personal perspective, and satisfies the requirement of what
"should" be.
Instructor: Sayed Kashif Ali
Instructor: Sayed Kashif Ali
DIVISIONS OF ECONOMICS
ECONOMICS

MICROECONOMICS
Specific
Deals with the economic
behavior of the
individual units such as
consumers, firms, the
owners of factors of
productions
Instructor: Sayed Kashif Ali
MACROECONOMICS
General, economy as a whole
Deals with the economic behavior of
the whole economy or its aggregate
such as
government, business, unemployment,
inflation and the like.
Refers to management of
income, expenditures, wealth or
resources of a nation.
Developments of Economics
 Historical
HUNTING AND FISHING

PASTORAL STAGE

AGRICULTURAL STAGE

HANDICRAFT STAGE

INDUSTRIAL STAGE
Instructor: Sayed Kashif Ali
HUNTING AND FISHING
 The wants of the primitive man were simple and few. They were easily
satisfied.

 Man lived on the wild fruits and roots

 He satisfied his need for food and clothing by picking fruits, by hunting and
fishing.

 Whenever there was not enough food, sometimes he practiced cannibalism.

That is, one man ate another man. 

Instructor: Sayed Kashif Ali

PASTORAL STAGE
 In course of time, with the growth of population, there arose a great need for
large amounts of food supply.

 Domestication of animals took place during the period.

 The animals were used for transport and later on for clothing, protection and
pleasure.

The idea of private property developed only during this stage and the wealth of
a man was determined y the number of cattle he had

. This in turn gave rise to inequalities of wealth and different social classes. Life

Instructor: Sayed Kashif Ali

Agricultural Stage
 From the pastoral stage, man reached the agricultural stage.
During this stage, he learnt the art of cultivating plants.

 By accident, man found that the seeds would multiply

themselves.

 And that was the beginning of the cultivation of the soil.

Agriculture made settled life necessary. Man no longer could
roam about as he did in the hunting stage.

 Thus, villages came up. Agriculture made it possible to

support a large population.

During the early phase of the agricultural stage, land was

common property.

Whenever economic, social and political conditions were good,

villages developed into towns.

Instructor: Sayed Kashif Ali

Commercial Stage
The wants of the population increased. In the early stages of
agriculture, man produced goods only for the consumption of his
own family.

But with the development of agriculture he learnt to produce

more than before. Naturally, he tried to give the surplus to
somebody and get something in turn.

This gave rise to exchange. Trade and commerce developed

that way. Not only that, agriculture created the need for tools and
implements. Some men devoted themselves to the provision of
tools, implements and such useful things others.

 There was specialization of labor in different trades. People

learnt that they could benefit by division of labor.
 Handicraft system developed like that.

At first money was not used as a medium of exchange. There

was only barter economy. That is, goods were exchanged for
goods.
Instructor: Sayed Kashif Ali
Industrial Stage
The industrial development can be broadly divided into four
systems. They are
(1) the family system
 (2) the guild system,
(3) the domestic system
 (4) the industrial revolution and the factory system.

 the family system

The family system was in existence in the Middle Ages. As the
name itself indicates, the family or the household was the center
of economic life. Wants were very few and members of the
family produced everything they needed and consumed all that
they produced. The household was a self-sufficient unit
The guild system,
The guild was an association of persons belonging to the same
trade for the promotion of common interests. Thus, there were
merchant guilds and craft guilds. Traders in towns formed
themselves into guilds (merchant guilds) for their protection and
mutual advantage. They controlled the buying and selling in
towns and protected the members of the guilds against
competition from outsiders Instructor: Sayed Kashif Ali
The Domestic System
The domestic system was very popular between the sixteenth
century and the eighteenth century.
Under the system, people still worked in their homes. But it
was different from the “family” system.
The middleman was known as the “clothier”.
 He was a merchant as well as an employer. In the early
stages, the worker, for example, produced only for the customer
with whom he was in direct touch.
But later on there was an increase in demand for his goods
from other countries. That how the middleman came into the
picture. 

The Industrial Revolution and Factory System

The factory system is typical of the nineteenth and twentieth
centuries. It is a product of the Industrial revolution. Production is
now carried on a large scale for world market.

Instructor: Sayed Kashif Ali

Concerns of Economics
 Economics is concerned with PRODUCTION
Production is the use of inputs to produce outputs.
Inputs are commodities or services that are used to produce
goods and services.
Outputs are the different goods and services which come out
of production process.
Society have to decide what outputs will be produced and in
what quantity

Instructor: Sayed Kashif Ali

 Economics is concerned with DISTRIBUTION
Distribution is the allocation of the total product among
members of society. It is related to the problem of for
whom goods and services are to be produced.
 Economics is concerned with CONSUMPTION
Consumption is the use of a good or service.
Consumption is the ultimate end of economic activity.
WHEN THERE IS NO CONSUMPTION, THERE WILL
BE NO NEED FOR PRODUCTION AND
DISTRIBUTION.
 Economics deals with PUBLIC FINANCE
Public Finance is concerned with government
expenditures and revenues. Economics studies how the
government raises money through taxation and
borrowing. Instructor: Sayed Kashif Ali
Types of Economics
1. Household Economics – most common use of economics is
for the family. At this level, anyone who knows the economic
principles will be able to improve the running of the
household.
2. Business Economics – when a person or group of persons
begins to work, they come under the system of business
economics in their workplace. In this type, you deal with the
rent, salary, profits and others.
3. National Economics – Economic factors of problems
affecting the whole nation. Deals with the management of
income, expenditures, wealth or resources of a nation.
4. International Economics – The highest stage of economic
activities involving the business of one country with other
countries like trade, tourism, exchange rates.
Instructor: Sayed Kashif Ali
 Is Economics a science?
Explain why if “yes” or why not if “no”

?
Instructor: Sayed Kashif Ali
Economics as a Science
 Is a science because it is an organized body of
truth, coordinated, arranged and systematized
with reference to certain general laws and
principles.(Observation, Formulation of theories, Gathering of
data, Experimentation, Conclusion, Generalization)
 Economic analysis seeks to explain economic
events using some kind of logic based on a set
of systematic relations.
 It is a social science because the subject
matter of economics is people or societies and
their behavior, unpredictable in nature.
Instructor: Sayed Kashif Ali
Relations of Economics to
other Sciences
MATHEMATIC
S
NATURAL
POLITICS
SCIENCE

ECONOMICS
ETHICS/ SOCIOLOGY
RELIGION

HISTORY GEOGRAPHY

Instructor: Sayed Kashif Ali

Essence of Studying
Economics
 To understand the world better
Applying the tools of economics can help you understand global
and cataclysmic events such as wars, famines, epidemics, and
depressions. Economics has the power to help us understand
these phenomena because they result from the choices we make
under the condition of scarcity.
 To gain self-confidence and become wise
decisions makers
Mastery of economics will help you to understand how things work
in your society thereby “feeling equipped”

Instructor: Sayed Kashif Ali

 To achieve social change and contirbute to
National Development
Economics can help us understand the origins of serious social
problems such as: unemployment, hunger, poverty, disease, child
abuse, drug addiction, violent crime. It will also explain why
previous efforts to solve these problems have failed, and help us to
design new, more effective solutions.

 To help prepare for other careers

Economics has long been a popular college major for individuals
who are intending to work in business. But it has also been
popular among those planning careers in politics, international
relations, law, medicines, engineering, etc. This is for good reason
because practitioners in each of these fields often find
themselves confronting economic issues.

Instructor: Sayed Kashif Ali

 Post-test
I. True or False: Carefully read each sentence
and determine if the sentence is true or if the
sentence is false.
1. Economics comes from the Greek word oikonomis
which means household Management .
2. Economics is considered a field of social science.
3. Economics is relevant because it is part
of everybody’s life.
4. There are three (3) divisions of Economics, the
microeconomics, the macroeconomics and the
home economics.
5. As a science, Economics is related to other
sciences. Instructor: Sayed Kashif Ali