Overview of Introductory
Economics
L EAH M . ESCO L
I NSTR U CTO R
Topic Outline
1.
Nature and Scope of Economics
2.
Branches of Economics
3.
Economics as a Social Science
4.
Three Fundamental Economic Problems
5.
Ten Principles of Economics
Scarcity is the limited nature of
society’s resources.
Efficiency denotes the most effective
use of society’s resources in satisfying
people’s wants and needs.
Economics studies how society
manages its scarce resources.
Branches of
Economics
1.
Microeconomics
the study of how households and firms make
decisions and how they interact in markets
2.
Macroeconomics
the study of economywide phenomena, including
inflation, unemployment, and economic growth
MICROECONOMICS
SUPPLY
DEMAND
PRODUCER
CONSUMER
MARGINAL COST
MARKET
MACROECONOMICS
AGGREGATE
DEMAND
AGGREGATE
SUPPLY
GROSS
DOMESTIC
PRODUCT
GOVERNMENT
SPENDING
Thinking Like An Economist
A model is a simplified representation of how two or more
variables interact with each other to understand the situation.
Thinking Like An Economist
A model is a simplified representation of how two or more
variables interact with each other to understand the situation.
ASSUMPTIONS!!!
Economic Models
Circular Flow Diagram is a visual model of
the economy that shows how dollars and
goods/services flow among households and
firms.
Economic Models
The Production Possibilities Frontier (PPF)
shows the maximum combinations of outputs
that an economy can efficiently produce given
limited resources (e.g. factors of production,
technical knowledge)
Economic Models
The Production Possibilities Frontier (PPF)
shows the maximum combinations of outputs
that an economy can efficiently produce given
limited resources (e.g. factors of production,
technical knowledge)
Economic Models
The Production Possibilities Frontier (PPF)
shows the maximum combinations of outputs
that an economy can efficiently produce given
limited resources (e.g. factors of production,
technical knowledge)
Economic Models
The Production Possibilities Frontier (PPF)
shows the maximum combinations of outputs
that an economy can efficiently produce given
limited resources (e.g. factors of production,
technical knowledge)
Economic Models
Orange
The Production Possibilities Frontier (PPF)
shows the maximum combinations of outputs
that an economy can efficiently produce given
limited resources (e.g. factors of production,
technical knowledge)
Apple
Positive vs.
Normative
Analysis
1.
Positive Analysis
claims that attempt to describe the world as it is
2.
Normative Analysis
claims that attempt to describe how the world should
be
Positive vs.
Normative
Analysis
1.
Positive Analysis
Increase in money supply causes inflation.
2.
Normative Analysis
The government should increase interest rates to
increase saving, discourage borrowing and stabilize
general price level.
The government should raise taxes to discourage
spending and stabilize general price level.
The Goal of Economic Science
The ultimate goal of economic science is to
improve the living conditions of people in
their everyday lives.
Three Fundamental Economic
Problems of Countries
What to produce?
How to produce?
For whom to produce?
What bundles of goods to produce
What and how much factors of
How should we allocate/distribute the
and in what quantity?
production to employ?
produce?
Alternative Economic Systems
Command Economy
Market Economy
Mixed Economy
The government makes the major
Individuals and private firms make the
With elements of market and
decisions in the economy
major decisions in the economy
command economies
A. How individuals make decisions
Ten Principles of
Economics
1. People face trade-offs
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives
B. How people interact
Ten Principles of
Economics
5. Trade can make everyone better off
6. Markets are usually a good way to organize
economic activity
7. Governments can sometimes improve market
outcomes
C. How the economy as a whole works
Ten Principles of
Economics
8. A country’s standard of living depends on its
ability to produce goods and services
9. Prices rise when the government prints too much
money
10. Society faces short-run trade-off between inflation
and unemployment
END.
References:
Steven A. Greenlaw. (2022). Principles of Economics 3e. OpenStax.
https://openstax.org/books/principles-economics-3e/pages/1-introduction
Mankiw, N.G. (2012). Principles of Economics (6th ed.). South-Western Cengage
Learning.
Samuelson P.A., & Nordhaus, W.D. (2010). Economics (19th ed.). McGraw-Hill
Irwin