Introduction to Economics

6 Key excerpts on "Introduction to Economics"

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  eBook - ePub

  CLEP® Social Sciences & History Book + Online, 2nd Ed.

  • Scott Dittloff(Author)
  • 2018(Publication Date)
  • Research & Education Association

    (Publisher)

  CHAPTER 3 ECONOMICS

  INTRODUCTION TO ECONOMICS

  What Is Economics?

  Economics is “the study of how a society allocates scarce resources amidst unlimited human wants.” As such, the concepts of scarcity and human wants are fundamentally important to the study of economics.

  Macroeconomics is the study of the economy as a whole. Some of the topics considered include inflation, unemployment, and economic growth.

  Microeconomics is the study of the individual parts that make up the economy. The parts include households, business firms, and government agencies, and particular emphasis is placed on how these units make decisions and the consequences of these decisions.

  Economic Analysis

  Economic Theory —An economic theory is an explanation of why certain economic phenomena occur. For example, there are theories explaining the rate of inflation, how many hours people choose to work, and the amount of goods and services the U.S. will import. Stripped down to essentials, a theory is a set of statements about cause-and-effect relationships in the economy.

  Models —A model is an abstract replica of reality and is the formal statement of a theory. The best models retain the essence of the reality, but do away with extraneous details. Virtually all economic analysis is done by first constructing a model of the situation the economist wants to analyze. The reason for this is because human beings are incapable of fully understanding reality. It is too complex for the human mind. Models, because they avoid many of the messier details of reality, can be comprehended, but good models are always “unrealistic.”

  It would not be inaccurate to say that economists do not analyze the economy; they analyze models of the economy. Almost every prediction that an economist makes, e.g., the impact of changes in the money supply on interest rates, the effect of the unemployment rate on the rate of inflation, the effect of increased competition in an industry on profits, is based on a model.

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  eBook - ePub

  A Guide to Business Mathematics

  • Gerard O'Regan(Author)
  • 2022(Publication Date)
  • Chapman and Hall/CRC

    (Publisher)

  19 A Brief Introduction to Economics

  DOI: 10.1201/9781003308140-19

  Economics is the social science that studies the production, distribution and consumption of goods and services. The word “economy” is derived from two Greek words (oikos meaning house) and (nemein meaning to manage), so the original meaning of the term was household management. Households have limited resources and the management of them requires many decisions and a certain level of organization. Households and firms are the basic unit of the economy, and are concerned with the problem of satisfying unlimited desires with limited (or scarce) resources.

  The meaning of the word “economics” has changed over time, and today it refers to the study of how societies make choices on what, how and to whom to produce given their limited resources. The key economic problem is how to reconcile the conflict between people's virtually unlimited desires with limited resources and means of production.

  Economics includes many economic models, and these are typically mathematical models presented in visual charts, or in formal mathematical notation using algebra and basic calculus. The mathematical models are simplifications of the economic reality, and they allow understanding and predictions (forecasting) of economic behaviour.

  Economics consists of two major fields: macroeconomics, which is concerned with how the overall economy works and so it is concerned with the behaviour of the entire economy; and microeconomics, which is concerned with the behaviour of individuals and businesses and their interactions, and especially how supply and demand interact in individual markets.

  Macroeconomics is the branch of economics that studies how an overall economy behaves. It analyses the entire economy including production consumption and savings, as well as issues affecting the economy (e.g., it studies Gross Domestic Product [GDP

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  eBook - ePub

  Doing Economics

  • Peter Smith(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  PART I

  Defining economics

  Passage contains an image

  1

  What is economics?

     

  This chapter will:

  • outline the subject matter of economics

  • set out three key questions that lie at the heart of economic analysis

  • introduce the main economic agents taking economic decisions

  • identify the way that economists approach decision-making and problem-solving

  • note the importance of coordinating resource allocation and the potential for economic policy to influence economic decisions and the performance of an economy

  Many students meet economics as a subject for the first time when they arrive to study it at university, sometimes with only a vague idea about what it is.

  This is partly because economics is not one of those subjects that forms part of the school curriculum from its early years. Almost from day one, pupils begin to learn the three Rs, reading, writing and ’rithmetic. These then evolve into English literature and language and mathematics. Geography, history and the core sciences follow soon after – but not economics.

  Economics as a discipline for study thus waits for the last couple of years of school or college, or for university. By the time you start to study economics, you will already have been taking economic decisions and facing economic problems without knowing that you have been doing so. By studying economics as a discipline, you will find that you become more aware of these decisions and problems, and will be able to tackle these more effectively.

  A definition of economics?

  Defining economics as a discipline is not as easy as you might expect. Perhaps you think that economics is the ‘study of the economy’, and to some extent that is correct. However, this is too simple, and leaves too many questions unanswered – for a start, this definition would not make sense unless it is absolutely clear what is meant by ‘the economy’.

  If you were to undertake a Google search on ‘economics definition’, you would be confronted by a range of possible options. Here are a few examples:

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  FTCE Social Science 6-12 (037) Book + Online

  • Cynthia Metcalf, Rhonda Atkinson(Authors)
  • 2017(Publication Date)
  • Research & Education Association

    (Publisher)

  Most contemporary definitions of economics involve the notions of choice and scarcity and their relationship to one another. Perhaps the earliest of these is by Lionel Robbins in 1935: “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” Virtually all textbooks have definitions that are derived from this definition, though the exact wording differs from author to author.

  The standard definition of economics is something like this: “Economics is the social science that examines how people choose to use limited or scarce resources to obtain maximum satisfaction of unlimited wants.”

  Macroeconomics is the study of the economy as a whole and includes topics such as inflation, unemployment, and economic growth. Microeconomics is the study of the individual parts (e.g., households, business firms, and government agencies) that make up the economy. It particularly emphasizes both how these units make decisions and the consequences of these decisions.

  COMPETENCY 2.1

  Analyze how scarcity and opportunity cost influence choices about how to allocate resources.

  Economists believe that human wants are unlimited while the resources to satisfy those needs are limited. Consequently, society is never able to produce enough goods and services to satisfy everybody, or almost anyone, completely. Alternatively, resources are scarce relative to human needs and desires. When resources are limited, the limitation affects prices (the amount of money needed to buy goods, services, or resources). Scarcity

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  Real Property in Australia

  Foundations and Applications

  • Michael J. Hefferan(Author)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  Difficulty also arises from the fact that economics affects, and is often critical to, nearly all forms of human activity. However, when examined in isolation, the subject can, like mathematics, appear abstract or obtuse. In defence of economic theory, problems often arise because politicians and makers of public policy have a long history of applying only that part of an economic approach or theory that happens to meet their immediate purposes, with little or no regard for the entirety of the proposal. When the (partially implemented) policy then fails to deliver the desired result or creates other difficulties, flawed theory is blamed.

  Economics would never claim to have definitive models or processes that can be universally applied or somehow accurately predict the future; no discipline can offer that. It would confidently claim, however, that there are common, observable, ‘rules of the game’ that provide a sound basis for rational decision-making across a range of activities. This includes, of course, structures for decisions in the use of resources such as property.

  Economics can be defined, in both theory and practice, as the science of how and why individuals and groups make decisions and choices and why they undertake certain actions. Traditionally, this analysis was based almost exclusively on financial considerations. In today’s more complex contemporary environment, however, a broader understanding of resource, and political, environmental and social considerations form part of that process. Thus, economics can be described as the study of options and the study of incentives used to encourage desirable outcomes (Wheelan 2010).

  Economics can also be defined as a social science that studies the production, distribution and consumption of goods and services. The word comes from the Greek ‘oikos’ meaning house and ‘vouoc ’ meaning custom or law; in other words, the ‘rules of the household’ or ‘how things are organised and how they run’. More specifically, Robbins (1998) defines economics as the science which studies human behaviour as a relationship between ends and scarce means, which have alternative uses. It can involve the analysis of what currently exists or, alternatively, a normative study; that is, proposing what ought to be, projecting trends and making recommendations for improvements in future decisions, choices and distribution.

  Robbins’ definition raises the issue of scarcity and the negative connotations referred to earlier. Certainly, given the almost endless list of human demands and wants, and the finite quantities of resources available for production (e.g. land, labour, capital and management), scarcity and shortages are inevitable. The positive aim of economics, however, is to provide the context (settings) and methods to maximise the efficient and effective use of those limited resources to meet, as far as possible, the demands of individuals and communities. Hence, the various branches of economics emphasise decision-making, the setting of priorities and the distribution of resources. ‘Property economics’ is one of those branches.

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  The Portable MBA

  • Kenneth M. Eades, Timothy M. Laseter, Ian Skurnik, Peter L. Rodriguez, Lynn A. Isabella, Paul J. Simko(Authors)
  • 2010(Publication Date)
  • Wiley

    (Publisher)

  The third key assumption of the economic approach is that preferences are stable, or, as some prefer, rational and stable. Preferences are an individual’s tastes for a certain good relative to other goods. Simply put, this assumption implies that no one would willingly do something counter to their interest and that their preferences do not change on a whim. If preferences were subject to frequent and substantial changes, voluntary exchanges in markets might not take place, and maximizing behavior would be quite difficult for an individual to undertake. Clearly, people’s preferences don’t always adhere to the assumptions of rationality and stability, but in some sense, this isn’t crucial. A simple economic approach is still valuable as a starting point from which more realistic assumptions can be added and analyzed. And assuming rational and stable preferences allows us to make general predictions about behavior even without an entirely accurate description of reality.

  Most of economic analysis proceeds from these three assumptions to investigate decisions made at the firm or individual level. Microeconomics is the general study of decisions, choices, and incentives at the individual and firm level. The next section of this chapter begins with an introduction to microeconomic analysis. Economists also study the economy as a whole, how fast it grows, and the way that changes in individual sectors and industries come together to determine key variables such as unemployment, inflation, exchange rates, and the level of interest rates. The study of a national economy and of the international economy as a whole is called macroeconomics, and it is the subject of the last half of this chapter.

  Microeconomics

  Microeconomics focuses on understanding individual or firm-level choices and the answers to common but important questions. How much should our firm produce? What price should we charge for our products and services? How profitable will we be? What should we pay our employees? These questions are complex, often fraught with uncertainty and ambiguity, and closely related to each other. Answering these questions is not easy. The answers are affected by literally hundreds and thousands of influences, which we reduce to a few key factors in order to begin our analysis. For example, the pricing decision is affected by those factors affecting the cost of production, the quantity that consumers are willing and able to buy, and the availability of alternative or substitute products. To deal with all these factors and their interactions, economists since Alfred Marshall, the nineteenth-century British economist, have used the framework or tool of supply and demand analysis.

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