Eco 2013
Chapter 1: An Introduction to Economics
Economics – the social science concerned with the efficient use of limited
or scarce resources to achieve maximum satisfaction of human material
wants.
Scarcity and Choice
All economics goods are scarce
Thus requiring individuals to make CHOICES
“There is no free lunch”
Everything has a cost {opportunity cost}
Rational Behavior - individuals make rational decisions to achieve the
greatest satisfaction or the maximum fulfillment of their goals.
Different people make different choices.
Marginalism: Benefits and Costs
Marginal analysis – comparison of marginal benefits and
marginal costs.
“Additional”
When making decisions review the marginal benefits and
marginal costs
If Marginal benefits exceed marginal costs then YES
Economics Methodology
Theoretical economics – process of deriving principles
Principles are generalization about the way that
individuals and institutions behave.
The role of economic theorizing or economic analysis is to
systematically arrange facts interpret them and generalize from them.
Economic principles are expressed as the tendencies of typical, or
average consumers, workers, or business firms.
Coteries paribus – other things are equal assumption
Created by: Prof. M. Mari
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They assume that all other variables except those under
immediate consideration are held constant for a particular
analysis.
Policy Economics – a course of action based on economic principles
and intended to resolve a specific problem or further a nation’s
economic goals.
Economic policy –
1. State the goal
2. Determine the policy options
3. Implement and evaluate policy
Economic goals –
1. Economic growth
2. Full employment
3. Economic efficiency
4. Price level stability
5. Economic freedom
6. Equitable distribution of income
7. Economic security
8. Balance of trade
Macroeconomics – economy as a whole or its basic subdivisions or
aggregates.
Microeconomics – look at specific economic units.
Positive economics – the scientific study of economics. What is?
Normative economics - the ethical or value judgments of economic
policy. What ought to be?
Pitfalls to Objective Thinking
 Biases
 Fallacy of composition
 Causation fallacies
o Post hoc fallacy – after this before that
o Correlation vs. causation
Created by: Prof. M. Mari
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