Introduction to Economics

Introduction to Economics

  • Economics studies how individuals and societies allocate scarce resources.

  • Scarcity: Humans have unlimited wants but limited resources, forcing choices.

  • Economics explores what choices are made, why they are made, and their consequences.

Scarcity: The Basic Economic Problem

  • Scarcity: Limited resources (land, labor, capital) cannot satisfy infinite wants.

  • This scarcity necessitates choices in resource allocation.

Three Basic Economic Questions:

  1. What will be produced with society’s limited resources?

  2. How will these goods and services be produced?

  3. For whom will the output be distributed?

Key Terms

Term

Definition

economics

Study of how individuals and societies allocate scarce resources.

scarcity

Limited resources versus unlimited wants.

economic resources

Factors of production: land, labor, capital, entrepreneurship.

models

Tools (graphs, math models) to simplify and analyze economic processes.

ceteris paribus

Latin for "all else equal"; used to isolate variables in analysis.

agent

Decision-maker (individual, business, government, etc.).

incentives

Rewards/punishments influencing decisions.

rational decision making

Using available info to maximize well-being.

positive analysis

Objective, testable cause-and-effect analysis.

normative analysis

Subjective analysis focused on what should be.

microeconomics

Study of individual markets (buyers/sellers interactions).

macroeconomics

Study of economies at large (growth, inflation, unemployment).

economic aggregates

Overall measures (GDP, inflation rate, unemployment rate).

Models and Graphs in Economics

  • Economics uses models to predict and explain economic behavior.

  • Ceteris paribus ensures one variable is analyzed at a time.

  • Rational agents are assumed to act in their self-interest.

  • Two types of analysis:

    • Positive analysis: Fact-based and testable.

    • Normative analysis: Value-based and subjective.

Microeconomics vs. Macroeconomics

  • Microeconomics: Focuses on individual markets and resource allocation.

  • Macroeconomics: Studies national and global economic trends.

Common Misperceptions

  • Economics ≠ just stock markets or business management.

  • Humans are not always rational; behavioral economics explores this.

  • Capital in economics = physical goods used for production (not money).

Discussion Questions:

  1. Victorian historian Thomas Carlyle called economics the "dismal science." How does economics offer insights other sciences cannot?

  2. How does scarcity impact your daily choices? Use at least 3 key terms.

  3. What are the three basic economic questions? How do different societies answer them?