Chapter 1 Samuelson 18e

Slide 1To learn a way of thinking
To understand society
Syed Arshad Hussain - Lecturer
The Fundamentals of Economics
A Definition of Economics
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.
Samuelson 18e
Another Definition of Economics
Economics is the science of choice — the science that explains the choices that we make and how those choices change as we cope with scarcity.
Parkin 4e
Another Definition of Economics
Economics is a field of social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of human wants.
McConnell 16e
Wants
Society’s wants exceed the resources available to satisfy them.
Scarcity
In economics scarcity refers to all useful things, i.e. things which are capable of satisfying a human want.
Goods which are not economic are of little or no concern to economists.
Rich and poor alike face the problem of scarcity.
Efficiency
Efficiency denotes the most effective use of a society’s resources in satisfying people’s wants and needs.
How do we maximize the total value of all production, ignoring who gets it and who bears the costs?
“There is no such thing as a free lunch”
Opportunity Cost
The opportunity cost of something is that which we give up when we make that choice or decision.
“The best alternative that we forgo, or give up, when we make a choice or a decision.”
Macroeconomics
Is the study of the national economy and the global economy as a whole.
Macro = Big
Microeconomics
Is the study of individual goods and services, people, and businesses and the interaction of people, firms, and governments in markets.
Micro = Small
What it is?
Economic Theory
An economic theory is a statement or set of related statements about cause and effect, action and reaction.
Economic Model
An economic model is a formal statement of an economic theory. Usually a mathematical representation of a presumed relationship between two or more variables.
Post Hoc Fallacy
A common error made when thinking about causation: if A happened before B then A did not necessarily cause B.
Failure to hold other things constant
Two variables are correlated if one variable changes when the other changes. This does not imply that one caused the other.
Fallacy of Composition
The fallacy of composition implies that what is true for a part is necessarily true for the whole.
What commodities are produced and in what quantities?
How are goods produced?
Market Economy or Laissez-faire Economy
Individuals and private firms make the major decisions about production and consumption. The concept of ‘invisible hand’.
Command Economy
Mixed Economy
Inputs
Commodities or services that are used to produce goods and services.
Outputs
Various useful goods and services that result from the production process and are either consumed or employed in further production.
Factors of Production
Factors of production are the resources, or “primary inputs” that we use to produce goods and services.
Land
Labor
Capital
Entrepreneur
Society’s Technological Possibilities
Factors of Production (cont.)
The “gifts of nature,” i.e. all natural resources, that we use to produce goods and services are land.
The work time and effort that people devote to producing goods and services is labor.
The quality of labor depends on human capital, which is the knowledge and skill that people obtain from education, on-the-job training, and work experience.
The tools, instruments, machines, buildings, and other man-made durable, physical, things that are used to produce goods and services are capital.
The human resource that organizes land, labor, and capital, and bears the risks involved, is entrepreneurship. The reward for organization and risk-bearing is profit [or loss!]
EXAMPLES OF MICROECONOMIC & MACROECONOMIC CONCERNS
Microeconomics
Production
Number of employees in

Chapter 1 Samuelson 18e

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Transcript of Chapter 1 Samuelson 18e