Economics: an introduction
Growth Economics
Roberto Pasca di Magliano
2015/2016
ECONOMICS: an Introduction
What is Economics all about?
Even someone who is not familiar with the discipline probably
has an idea of the main topics that Economics is concerned
with
A first list of these topics, could be the following:
 markets, competition, market structure
 consumption , production
 labour market
 inflation
 public spending, taxes, public debt,
 stock market
 multinationals, globalization, foreign investment
But a mere list of topics is not
enough
The list (even if enriched) is not enough to define the economic
science.
These topics are not the sole interest of economics but they
also concern:
 Other disciplines (sociology, law, etc.)
 Social actors (enterprises, banks, trade unions, etc.)
 Institutions (either local, national or international)
It is necessary to specify the point of view and the method that
the economist chooses to use while studying these topics.
What is Economics?
Economics is a social science which studies the choices of the
economic agents and the interaction that establishes itself among
the single choices.
In other words, it studies the modality through which individuals,
organizations and enterprises employ scarce resources to produce
various types of goods and services, as well as the ways in which
they are distributed among the subjects (families, entreprises) to
satisfy their present or future needs.
Economics assume that the choices of the agents are:
• based on a criteria of rationality
• aimed to maximize objectives of individual interest (profits,
utility, etc.)
General Principles: Scarcity
• Scarcity of resources happens everytime that, given the
needs of a society at a given time, the means available to
satisfy them are not sufficient.
• A consequence of scarcity is that society, institutions,
organizations and individuals are almost always forced to
choose within a limited set of possibilities between
objectives and scarce means applicable to alternative uses.
• Scarce means that any resource acquires a value (price)
General Principles: Reliable information
• It is assumed that all the data relative to the
prices of any good and to the available
technologies are known and available a-priori
both to the entreprises who produce goods, and
to the consumers who buy them.
General Principles: Rationality
• A fundamental principle on which are based most of
economic analyses is the rationality of choices.
• Rationality assumes that economic agents’ behavior uses
standard criteria as it is assumed that everybody is
perfectly capable of assessing the costs and the benefits
following each available set of alternative scenario.
Microeconomics and Macroeconomics
Economics is articulated into two major sub-disciplines:
microeconomics and macroeconomics
• MICROECONOMICS emphasize the individual dimension of the
various economic problems (choice of the single consumer, choice
of the single firm, the functioning of a given market, the
determination of a price, etc.)
• MACROECONOMICS study the functioning of the economic system
as a whole (national product, consumption, saving, investment,
employment and unemployment, inflation etc.)
Microeconomics
The main topics it deals with are:
1. Consumer Choice Theory
How a rational consumer decides to spend his own income in order to
maximize the satisfaction (utility) that he draws from his purchases
2. Theory of Production
How a firm chooses the inputs to be used and in which quantity, as well
as how it decides about production mix
3. Market Structure
Characteristics and degree of market power held by sellers and buyers
Macroeconomics
The main topics it deals with are:
1. National Income
How to determine a country’s GDP, national consumption, saving,
investment, public expenditure, etc.
2. Employment
Causes, typologies (structural, conjonctural), consequences
3. Political economy
•Fiscal policies (taxes, transfers, public investments) , as it is run
by the State
•Monetary policies (interest rate, currency exchange rate) as it is
run by the Central Bank
Main Schools of Thought
Classical School
(1600/1700, until the second-half of the 1800s)
Main authors : Abate Ferdinando Galiani, Adam Smith,
Thomas Malthus, David Ricardo, Stuart Mill, Karl Marx
Economics is a social science that studies questions such as
capital accumulation and income distribution
Marginalist or Neo-classical School
(since 1870 circa)
Main authors : Jevons, Walras, Marshall, von Hajek, Friedman,
Say, Philips
Economics studies how to obtain the best result in the
presence of a given amount of resources available
Main Schools of Thought (2)
Keynesian School
(since 1930 circa)
Main Thinkers: Keynes, Galbraith, Stiglitz, Dornbusch, Phelps
Growth is no longer driven by offer, but rather sustained by
demand, even public
Development different from growth
(since 1950 circa)
Main thinkers of development: Lewis, Kuznets, Bauer, Myint,
Streeten, Sen, Yunus
The problems of the economies of the developing world are
concerned not only with economic aspects but also with
institutional and social ones; unlike growth that is concerned
only with economics and is concentrated in the developed
countries
The State and the Market
•Periodically, in conjunction with major economic events that
raise the attention of the public opinion, the scientific and
political community interrogate themselves on the role of the
free market
•The discussion aims at understanding the extent and the
modalities of State intervention in the market mechanism
•At the extremes of this debate, there are on the one hand the
supporter of State intervention and on the other the liberal
oriented economists
Comparing the two positions
Supporter of State intervention sustains that:
• outcome by market allocations may not be socially
acceptable
• the market, if left unregulated and free to follow its own
rules, does not function well
Market supporter argues that:
• market is the most efficient mechanism
• market has an automatic capacity to increase well-being
• moral qualities (i.e.: meritocracy)