Introduction to Economics

Week 1

What is economics?

A field of discipline that addresses the issue of resource allocation.

What is limited resource allocation?

Resources (natural and human) to produce various goods and services to consume them is limited

What is unlimited resource allocation?

Humans wants/desire to consume is unlimited

How do we choose the desirable allocation of limited resources to best satisfy our unlimited desire?

• Macroeconomics

• Microeconomics

What are macroeconomics?

Study of an economy as a whole (country, region, etc,)

GNP < Inflation, unemployment, fiscal and monetary policy.

What is microeconomics?

The study of mechanism (called market mechanism) that allocates resources in a market/among markets.

What is a market mechanism?

A set of means (place of transaction, method of communication to exchange information, etc) by which producers/firms and consumers/households trade goods and services.

What is the Economic theory in Market mechanism?

Abstraction/simplification of reality that attempts to explain casual relationships.

What is the Economic Model in market mechanism?

A representation of theory, often in graphs and equations, to gain insight into the theory and the reality.

How do economists model the behaviour of economic agents?

They usually assume that decision makers are rational, or that agents make rational decisions (i.e. decisions that best serve that objective of the decision makers)

How is a consumer modelled?

A consumer makes a decision to maximise his/her happiness/satisfaction out of consuming goods and services —> Maximising

How is a producer modelled?

A producer makes decisions to maximise profit.

How is the Government modelled?

Government choose policies to maximise…

What is opportunity cost?

The opportunity cost of a decision is the value of the best alternative forgone (to do without)

What do we assume about decision makers with opportunity cost?

The decision makers take into account opportunity cost

How many participants are involved in market transactions in the market system?

All participants are involved

When does trading of goods and services happen?

When its mutually beneficial for sellers and buyers.