Microeconomics Session 01 (Economics Made Easy)

SESSION 1

ECONOMICS MADE EASY

Definition of Economics

  • Economics is the science that studies how people and societies make decisions to get the most out of their limited resources.

Key Concepts

Limited Resources

  • Human wants and needs are greater than the available resources.

  • Goods and services are limited, necessitating choices about their allocation.

Primitive Economies

  • Characteristics:

    • Based on barter and exchange.

    • No currency or banking systems.

    • Focus on mutual obligations and unity over profit.

    • Strong communal organization.

    • Absence of regular markets and competition.

    • No concept of private property.

    • Consumption exceeds production.

Distribution of Resources in Primitive Economies

  • Example of cooperative hunting:

    • Carcass is not divided by work contribution but rather by social relations within the tribe.

    • Distribution based on kinship:

      • Forelegs to father’s sister.

      • Tail to brother’s son.

      • Various parts of the animal given to specific relatives (e.g., loins to father-in-law, head to wife).

Criss-Cross Exchange

  • Sharing food based on kinship ethics.

  • Conflicts arise when sharing principles are perceived as unfair, not due to the communal aspect itself.

  • Inequality corrected by better portions received from others over time.

Understanding Scarcity

  • Scarcity refers to the fundamental economic problem of having seemingly unlimited human wants and needs in a world of limited resources.

  • Money alone does not alleviate scarcity; time and physical resources are also limited.

  • This necessitates tough choices regarding production and consumption.

Points of View in Economics

Macroeconomics

  • Studies economy-wide phenomena.

  • Focus on national policies, GDP, unemployment, income levels, and price levels.

Microeconomics

  • Examines individual and business decision-making.

  • Focus on supply and demand dynamics.

  • Example: How a company maximizes production to lower prices and enhance competitiveness.

Systems Approach

  • Cause & Effect Analysis:

    • Investigate underlying reasons for economic issues (e.g., brownouts, low grades).

  • Correlation between systems thinking and practical economic issues (e.g., gas prices, road congestion).

Thinking Beyond Linear Models

  • Traditional thinking may be too simplistic (A-B).

  • Encouraged to use linear, non-linear, and loop thinking models for a comprehensive understanding.

Causal Loop Diagrams

Variables and Actions

  • Variables may be qualitative or quantitative, and can increase or decrease based on interactions.

  • Actions are represented as arrows showing relationships between variables:

    • Same Direction [S]: When variable A increases, variable B also increases.

      • Example: Rising gasoline prices lead to increased fare.

    • Opposite Direction [O]: When variable A increases, variable B decreases.

      • Example: Rising gas prices lead to decreased private vehicle usage.

Group Activity Instructions

  • Include all possible variables affecting a scenario.

  • Explore direct and indirect connections logically.

  • Utilize causal loop diagrams to visualize relationships between macroeconomics and microeconomics.