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Introduction to Economics
Economics is all
about humanity’s
struggle to achieve
happiness in a world
full of constraints
Needs and wants?
• NEEDS – “stuff” we must have to survive generally : food, shelter,
clothing
• WANTS – “ Stuff” we would really like to have ( fancy food , shelter ,
clothing. ig, screen TVs, jewelry, conveniences . Also knows as
LUXURIES
• Stuffs?-----------Goods and Services
Goods – tangible ( you can touch it) products we can buy
Services – intangible -- work that is performed for others
Tradeoffs and Choice
• Economics is all about how groups and individuals make choices
• why they choose the things that they do.
• To keep things simple, our explanation of individual choice behavior focuses
on consumer behavior, because most of the choices people make on a day-
to-day basis involve which goods and services to consume.
• But, of course, real-life choices often encompass a lot of other things, some
of them very weighty.
• For example, people must make choices about long-term things like whether
to get a job or continue in education, as well as things of the greatest
possible seriousness like whether to continue negotiating or declare war
Trade OFFs
• What could you have done instead of come
to school today ?
Opportunity Cost
• “Opportunity cost is the value of the next-best alternative when a
decision is made; it's what is given up,” explains Andrea Caceres-
Santamaria, senior economic education specialist at the St. Louis Fed
• When we take any decision, we must ask ourselves…..
1.How much do I value this?
2.What am I giving up now to have this?
3.What am I giving up in the future to have this now?
Two Streams
Microeconomics Macroeconomics
• Microeconomics focuses on individual people • Macroeconomics looks at the economy
and individual businesses. as an organic whole, concentrating on
economy-wide factors such as interest
• Microeconomics explains how individuals
rates, inflation and unemployment.
behave when faced with decisions about
where to spend their money or how to invest • Macroeconomics also encompasses the
their savings, study of economic growth and how
governments use monetary and fiscal
• and how profit-maximising firms behave both
policy to try to moderate the harm
individually and when they’re competing
caused by recessions.
against each other in markets.
Defining Economics -
• According to Gunnar Myrdal , Swedish economist
“Economics is the only term regarding the precise definition of which
the economists need not be concerned “
So.. It is said that its needless to define economics.
…..however…..
• Early definitions of economics was all about “wealth”
• Adam Smith – “ An enquiry into the nature and causes of wealth of
nations “
• Early economists called this the science of wealth
• J.E Cairnes in this book also mentioned , economics deals with
phenomenon of wealth
• F A walker says body of knowledge which relates to wealth
• ******** gradually the exaggerated emphasis on WEALTH has been
removed*********
• Scaffle , Germany
• Droz ,France
• Placed the role of man higher than the role of wealth
• Wealth is only a means to an end, the end being human welfare.
• Alfred Marshall – economics is on the one side a study of wealth and
on the other and more important side, a study of man
Marshallian Definition
• Political economy or economics is a study of mankind in the ordinary
business of life; it examines that part of individual and social action
which is most closely connected with the attainment and with the use
of material requisites of well being .
• Material welfare – Beveridge, Cannan ,Pigou
• According to the above economists, the aim of economics is to study
human activities which are conducive to human welfare in its material
aspect
4 points from Alfred Marshall’s
definition
1. Economics does not regard wealth as the be- all and end- all of
economic activities. Wealth is sought for promoting human welfare.
2. Economics is not concerned with “ economic man” rather deals
with ordinary men and women.
3. Economics is social science. It studies people living in society
influencing other people and being influenced by others.
4. Economics studies only “ material requisites of wellbeing”
Criticism by Robbins
• Material welfare only? – in the actual study of economics principles
both “material and immaterial” are taken into account
• Classificatory
• Restricted the scope of economics
Lionel Robins
• Nature and significance of economic science
• Economics is concerned with both material and immaterial things
provided they have value
• Welfare?
• What if there is no welfare but yet a price ?
Economics is the science which studies human behavior
as a relationship between ends and scarce means
which have alternative uses
Three fundamental propositions which
constitute the basis of the structure of
economic science
1. Ends refers to WANTS.
2. Although wants are unlimited, means to satisfy them are extremely
limited. Scarcity is used here in a relative sense ; in relation to
requirements.
3. scare means are capable of alternative uses.
Robbins demolished the old structure of economics and created a new
one based on 2 foundations --- multiplicity of wants and scarcity
of means
Modern definition
• John Maynard Keynes
• Economics studies income and employment in a community are
determined
• Economics is the study of the administration of scare resources and of
the determinants of income and employment.
• Benhams words “ Economics is a study of the factors affecting the size
distribution and stability of a country’s national income
Paul Samuelson
• Economics is a study of how men and society “choose” with or without
the use of money , to employ scare productive uses resource which
could have alternative uses to produce various commodities over
times and distribute them for consumption now and in the future
among various people and groups in the society.
Economic questions
• Society (we) must figure out
• what to produce (make)
• how much to produce ( quantity)
• how to produce it ( manufacture)
• for whom to produce ( who gets what)
• who gets to make these decision.
Why do we need economics in
public administration ?
• How the government fights recessions and unemployment using monetary and
fiscal policy.
• How and why international trade is good for us.
• Why poorly designed property rights are responsible for environmental problems
such as global warming, pollution, and species extinctions.
• How profits guide businesses to produce the goods and services we take for
granted.
• Why competitive firms are almost always better for society than monopolies.
• How the Bangladesh Bank controls the money supply, interest rates and inflation
all at the same time.
• Why government policies such as price controls and subsidies typically cause
