Introduction to Economics Eco-101 Lecture # 01 Introduction to Economics and its important Aspects Instructor: Farhat Rashid

What is ECONOMICS Economics is the social science concerned with how individuals, institutions and society make optimal choices under the conditions of scarcity OR Economics is the optimal utilization of scarce resources.

Scarcity and choices Scarcity means limited goods and services as compare to unlimited wants of society. It restricts the options and demands choices It forces the people to decide what they will have and what they have to forgo Because we “cant have it all”.

Branches of economics Micro vs macro economics Positive vs normative economics

MICROECONOMICS Microeconomics is the part of economics concerned with individual units such as a person, a household, a firm, or an industry. In it, the economist observes the details of an economic unit, or very small segment of the economy. In microeconomics we look at decision making by individual customers, workers, households, and business firms. It studies the interrelationship between these units in determining the pattern of production and distribution of goods and services. E.g. – We measure the price of a specific product, – the number of workers employed by a single firm, – the revenue or income of a particular firm or household, or – the expenditures of a specific firm, government entity, or family.

Macroeconomics Macroeconomics examines the economy as a whole or at aggregate level. It speaks of such economic measures as total output, total employment, total income or aggregate expenditures. Shortly, macroeconomics looks at the beach, not on the pieces of sands or shells etc.

Positive Economics It focuses on facts cause-and-effect relationships. It includes description, theory development, and theory testing (theoretical economics). It avoids value judgement, tries to establish a scientific statement about economic behavior, and deals with what the economy is actually like. “ WHAT IT IS?”

Normative Economics Economic policy, involves normative economics, which incorporates – value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal (policy economics). “WHAT IT SHOULD BE?”

Microeconomics Objectives Efficiency – the property of society getting the most it can from its scarce resources Equity – the property of distributing economic prosperity fairly among the members of society

Basic terms of micro economics Consumer: is an individual/household that consumes goods/services produced in an economy. Firm: An organization that employs resources to produce a good/service for profit and owns and operate one or more plants. Market: Any institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a particular good or a service.

Opportunity Cost The opportunity cost of an item is what you give up to get the that item. The opportunity cost of any alternative is defined as the cost of not selecting the "next- best" alternative.

Production Possibility curve Production possibility curve displays the different combinations of goods and services that society can produce in fully employed economy with constant supply of resources and level of technological progress.

A Typical PPF curve