Principles of Economics
Twelfth Edition
Chapter 1
The Scope and Method
of Economics
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Metin
The Scope and Method of Economics
• Scarcity: «Scarce»: limited
Unlimited wants/needs
Scarcity: kıtlık, nadirlik, az bulunurluk.
Hangi kaynaklar az bulunurun karşılığı bu.
Su
Land area yani toprak
natural gas
Limited means/ways/tools/resources
• Limited water
• Limited land area
• Limited natural gas
• Limited petroleum
Limited natural resources
(minerals, plants, etc.)
• Limited money
• Limited physical/mental
power
• Limited TIME
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The Scope and Method of Economics
Gelişmiş( sanayileşmiş) ülkeler kıtlıkla karşı karşıya mı?
Gelişmiş( sanayileşmiş ülkelerden bir kaçı :
Germany , australia, denmark, hong kong, netherland,
japan, swiszerland, ıceland, ıreland, sweden.
BU ARADA BUNLARIN İÇİNDEN TOP3 OLAN
SWİTZERLAND
NORWAY
ICELAND
Do developed (industrialized) countries face with scarcity?
YES
What about Elon Musk or Bill Gates?
How to deal with scarcity?
kıtlıkla nasıl anlaşmaya varabiliriz?
Seçimler, tercihler yaparak
Make a CHOICE.
Economics is the study of how people make choices. Economics is a
behavioral, or social, science.
Economics: The study of how individuals and societies choose to use the
scarce resources that nature and previous generations have provided.
Ekonomi, insanların nasıl seçimler yaptığının incelenmesidir. Ekonomi davranışsal veya sosyal bir bilimdir.
Ekonomi: Bireylerin ve toplumların, doğanın ve önceki nesillerin sağladığı kıt kaynakları nasıl kullanmayı
seçtiklerinin incelenmesi.
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Why Study Economics?
To Learn a Way of Thinking
Neden Ekonomi Okuyorsun?
Bir düşünme biçimini
Öğrenmek
* Ekonominin aşağıdaki gibi
temel kavramları vardır• *
Fırsat maliyeti
* Marjinalizm
• Economics has fundamental concepts like:
• Opportunity cost
• Marginalism
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To Learn a Way of Thinking
Opportunity Cost
Bir düşünme biçimini Öğrenmek
Fırsat Maliyeti
Bir seçim yap →
Bir seçim yapmak için alternatifler arasından seçim
yapıyoruz →
Hangi seçimi yaparsanız yapın, başka bir şey seçebilirdiniz
→ Seçimlerinizi takas(tradeoffs) olarak düşünün →
Başka bir şey yapmak için fedakarlık ediyorsun.
Bir seçim veya karar verdiğimizde vazgeçtiğimiz veya
vazgeçtiğimiz en iyi alternatifi fırsat maliyetine
dönüştürmek.
Make a choice →
To make a choice we select from alternatives →
Whatever choice you make, you could have chosen something else →
Think about your choices as tradeoffs →
You sacrifice to do something else.
 opportunity cost The best alternative that we forgo, or give up, when
we make a choice or decision.
fırsat maliyeti: Bir seçim veya karar verdiğimizde vazgeçtiğimiz veya tercih etmediğimiz en iyi alternatif.
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To Learn a Way of Thinking
Opportunity Cost
Ex: Individual:
• Meeting with friends
• Playing video games
• Having dinner with family
• Going for a shopping
Opportunity cost of meeting with friends is having dinner with family.
Ex: Public authority:
• Invest for infrastructure
• Invest for education
• Invest for health-care system
Opportunity cost of investment in education system is the investment in
health-care system forgone.
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To Learn a Way of Thinking
Opportunity Cost:
Ex: A farmer can cultivate either 100 kilos of apples or 200 kilos of oranges
on his land. If he prefers to use the land only for orange production, what
will be the opportunity cost?
 Opportunity cost of 200 kilos of oranges is 100 kilos of apples.
What is the opportunity cost of 100 kilos of oranges?
If he prefers to use the land only for apple production, what is the
opportunity cost?
 Opportunity cost of 100 kilos of apples is 200 kilos of oranges.
What is the opportunity cost of 10 kilos of apples?
Is there any opportunity cost of attending college education?
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To Learn a Way of Thinking
• Marginalism The process of analyzing the additional or incremental costs
or benefits arising from a choice or decision.
Decision for «How much?»
 Compare marginal cost and marginal benefit.
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To Learn a Way of Thinking
• Marginal Cost
Marginal cost is the opportunity cost of a one-unit increase in an activity.
The marginal cost of something is what you must give up to get one additional
unit of it.
Ex: If it costs $2 to produce one book and $3 to produce two books, what is
the marginal cost of the first book and the second book produced?
If it costs TL 50 to produce each unit of t-shirts, what is the marginal cost of
21st t-shirt produced?
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To Learn a Way of Thinking
• Marginal Benefit
Marginal benefit is the what you gain when you get one more unit of
something.
The marginal benefit of something is measured by what you are willing to give
up to get one additional unit of it.
Ex: Apples traded for a glass of water.
If the firm sells each book at a price of $5, what is the marginal benefit
(marginal revenue) of the second book sold?
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To Learn a Way of Thinking
More of an economic activity: Marginal cost (↑); Marginal benefit (↓)
Making a Rational Choice
You make a rational choice when you take those actions for which marginal
benefit exceeds or equals marginal cost.
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The Scope of Economics
Microeconomics and Macroeconomics
microeconomics The branch of economics that examines
the functioning of individual industries and the behavior
of individual decision-making units—that is, firms and
households.
macroeconomics The branch of economics that examines
the economic behavior of aggregates—income,
employment, output, and so on—on a national scale.
Q: Would the demand for iPhones in Turkey be studied under microeconomics
or macroeconomics?
What about the growth rate of total economic output in the national
economy?
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TABLE 1.1 Examples of Microeconomic and Macroeconomic Concerns
Division
of Economics
Production
Prices
Income
Employment
Microeconomics
Production/output
in individual
industries and
businesses
How much steel
How much office
space
How many cars
Prices of individual
goods and services
Price of medical care
Price of gasoline
Food prices
Apartment rents
Distribution of
income and wealth
Wages in the auto
industry
Minimum wage
Executive salaries
Poverty
Employment by
individual businesses
and industries
Jobs in the steel
industry
Number of employees
in a firm
Number of
accountants
Macroeconomics
National
production/output
Total industrial
output
Gross domestic
product
Growth of output
Aggregate price level
Consumer prices
Producer prices
Rate of inflation
National income
Total wages and
salaries
Total corporate
profits
Employment and
unemployment in the
economy
Total number of jobs
Unemployment rate
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TABLE 1.2 The Fields of Economics
Behavioral economics
Do aggregate household savings increase when we
automatically enroll people in savings programs and let
them opt out as opposed to requiring them to sign up?
Comparative economic systems
How does the resource allocation process differ in market
versus command and control systems?
Econometrics
What inferences can we make based on conditional
moment inequalities?
Economic development
Does increasing employment opportunities for girls in
developing nations increase their educational
achievements?
Economic history
How did the growth of railroads and improvement in
transportation more generally change the global banking
system in the nineteenth century?
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TABLE 1.2 The Fields of Economics
Environmental economics
What effect would a tax on carbon have on emissions? Is a
tax better or worse than rules?
Finance
Is high frequency trading socially beneficial?
Health economics
Do co-pays by patients change the choice and use of
medicines by insured patients?
The history of economic thought
How did Aristotle think about just prices?
Industrial organization
How do we explain price wars in the airline industry?
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TABLE 1.2 The Fields of Economics
International economics
What are the benefits and costs of free trade? Does concern
about the environment change our views of free trade?
Labor economics
Will increasing the minimum wage decrease employment
opportunities?
Law and economics
Does the current patent law increase or decrease the rate of
innovation?
Public economics
Why is corruption more widespread in some countries than in
others?
Urban and regional economics
Do enterprise zones improve employment opportunities in
central cities?
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The Method of Economics
Economics deals with two kinds of questions: positive and normative.
• positive economics An approach to economics that seeks to understand
behavior and the operation of systems without making judgments. It
describes what exists and how it works.
• Statements about «what is»
• normative economics An approach to economics that analyzes outcomes
of economic behavior, evaluates them as good or bad, and may prescribe
courses of action. Also called policy economics.
• Statements about «what ought to be»
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The Method of Economics
Q: Determine whether the following statements are the subject matter of
positive or normative economics.
• Minimum wage should be higher for each worker.
• As the demand for $ increases, TL becomes less valuable against $.
• Cost of education is high in Turkey.
• Protecting the environment should be the number one concern of world
leaders.
• It is right to tax the rich more than the poor.
• Unemployment is rising.
• Old-age pensions ought to be increased in line with inflation.
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Theories and Models
• model A formal statement of a theory, usually a mathematical
statement of a presumed relationship between two or more variables.
• variable A measure that can change from time to time or from
observation to observation.
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Theories and Models
All Else Equal
• ceteris paribus, or all else equal (other things remain constant) A
device used to analyze the relationship between two variables while the
values of other variables are held unchanged.
• Using the device of ceteris paribus is one part of the process of
abstraction.
• In formulating economic theory, the concept helps us simplify reality to
focus on the relationships that interest us.
Q: What is the effect of a rise in income on the consumption of fish, cet.
par.?
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Economic Policy
Four criteria are important in judging economic outcomes of policies:
 Efficiency
 Equity
 Growth
 Stability
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Economic Policy
Efficiency
• efficiency In economics, allocative efficiency. An efficient economy is one
that produces what people want at the least possible cost.
Q: Firm A and Firm B produce the same product (t-shirts). If firm A employs
10 workers and firm B employs 15 workers to produce 100 t-shirts, then
efficient producer is?
Equity
• equity Fairness.
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Economic Policy
Growth
• economic growth An increase in the total output of an economy.
Q: Do higher taxes or lower taxes promote economic growth?
Stability
• stability A condition in which national output is growing steadily, with low
inflation and full employment of resources.
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REVIEW TERMS AND CONCEPTS
•
ceteris paribus, or all else equal
•
scarcity
•
economic growth
•
stability
•
economics
•
efficiency
•
equity
•
macroeconomics
•
marginal cost, marginal benefit
•
microeconomics
•
model
•
normative economics
•
opportunity cost
•
positive economics
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CHAPTER 1 APPENDIX:
How to Read and Understand Graphs
• graph A two-dimensional representation of a set of numbers or data.
•
•
•
X-axis The horizontal line against which a variable is plotted.
Y-axis The vertical line against which a variable is plotted.
origin The point at which the horizontal and vertical axes intersect.
• 3 types of graphs:
• Scatter diagram
• Time-series graph
• Cross-section graph
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• Scatter diagram is a graph of the value of one variable against the
value of another variable.
In 2010, income per person was
$32,335 and expenditure per
person was $29,686.
The data for 2000 to 2012 show
that as income increases,
expenditure increases.
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• Time-series graph is a graph illustrating how a variable changes over time. It
also shows the trend for the given variable (a general tendency for the value
of a variable to rise or fall).
The graph shows when
the price of coffee was:
• Low or high.
• Rising or falling.
• Changing quickly or
slowly.
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• Cross-section graph is a graph that shows the values of an economic
variable for different groups in a population at a point in time.
The graph shows the
percentage of people who
participate in various sporting
activities.
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
Interpretation of Graphs Used in Economic Models
Positive relationship or direct relationship is a relationship between two
variables that move in the same direction.
Negative relationship or inverse relationship is a relationship
between two variables that move in opposite directions.
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Positive relationship:
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Negative relationship:
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Both positive and negative relationship:
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Unrelated variables:
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The Slope of a Relationship
Slope equals the change in the value of the variable measured on the
y-axis divided by the change in the value of the variable measured on
the x-axis.
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The Slope of a Relationship
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•
•
Ex: Graph the following linear equations:
and
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•
Relationships Among More Than Two Variables
• To graph a relationship that involves more than two variables, we use
the ceteris paribus assumption.
• Ceteris Paribus “other things remaining the same.”
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•
Relationships Among More Than Two Variables
Ex: The relationship between price and ice cream consumption, temperature
remaining the same.
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•
Relationships Among More Than Two Variables
Ex: The relationship between temperature and ice cream consumption, price
remaining the same.
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•
Relationships Among More Than Two Variables
Ex: The relationship between price and temperature, consumption remaining
the same.
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Exercise: The table provides data on the price of hot chocolate, the
temperature, and the cups of hot chocolate bought. Draw the graphs to show
the relationship between:
a. the price and cups of hot chocolate, when the temperature is constant.
b. the temperature and cups of hot chocolate bought, when the price is
constant.
Price (dollars per
cup)
Hot Chocolate Cups (per week)
10 ⁰C
21 ⁰C
32 ⁰C
2.00
40
30
20
2.50
30
20
10
3.00
20
10
0
3.50
10
0
0
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