Unit 1: Introduction to economics
What Is Economics?
Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices on allocating resources to satisfy their wants and needs, trying to determine how these groups should organize and coordinate efforts to achieve maximum output.
Economics can generally be broken down into macroeconomics, which concentrates on the behavior of the aggregate economy, and microeconomics, which focuses on individual consumers and businesses.
Understanding Economics
One of the earliest recorded economic thinkers was the 8th-century B.C. Greek farmer/poet Hesiod, who wrote that labor, materials, and time needed to be allocated efficiently to overcome scarcity. But the founding of modern Western economics occurred much later, generally credited to the publication of Scottish philosopher Adam Smith's 1776 book, An Inquiry Into the Nature and Causes of the Wealth of Nations.1
The principle (and problem) of economics is that human beings have unlimited wants and occupy a world of limited means. For this reason, the concepts of efficiency and productivity are held paramount by economists. Increased productivity and a more efficient use of resources, they argue, could lead to a higher standard of living.
Despite this view, economics has been pejoratively known as the "dismal science," a term coined by Scottish historian Thomas Carlyle in 1849.2 He used it to criticize the liberal views on race and social equality of contemporary economists like John Stuart Mill, though some sources suggest Carlyle was actually describing the gloomy predictions by Thomas Robert Malthus that population growth would always outstrip the food supply.
Types of Economics
The study of economics is generally broken down into two disciplines.
Schools of Economic Theory
There are also schools of economic thought. Two of the most common are monetarist and Keynesian. Monetarists have generally favorable views on free markets as the best way to allocate resources and argue that stable monetary policy is the best course for managing the economy. In contrast, the Keynesian approach believes that markets often don’t work well at allocating resources on their own and favors fiscal policy by an activist government in order to manage irrational market swings and recessions.
Economic analysis often progresses through deductive processes, including mathematical logic, where the implications of specific human activities are considered in a "means-ends" framework. Some branches of economic thought emphasize empiricism, rather than formal logic—specifically, macroeconomics or Marshallian microeconomics, which attempt to use the procedural observations and falsifiable tests associated with the natural sciences.
Since true experiments cannot be created in economics, empirical economists rely on simplifying assumptions and retroactive data analysis. However, some economists argue economics is not well suited to empirical testing, and that such methods often generate incorrect or inconsistent answers.
https://www.investopedia.com/terms/e/economics.asp
Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices on allocating resources to satisfy their wants and needs, trying to determine how these groups should organize and coordinate efforts to achieve maximum output.
Economics can generally be broken down into macroeconomics, which concentrates on the behavior of the aggregate economy, and microeconomics, which focuses on individual consumers and businesses.
Understanding Economics
One of the earliest recorded economic thinkers was the 8th-century B.C. Greek farmer/poet Hesiod, who wrote that labor, materials, and time needed to be allocated efficiently to overcome scarcity. But the founding of modern Western economics occurred much later, generally credited to the publication of Scottish philosopher Adam Smith's 1776 book, An Inquiry Into the Nature and Causes of the Wealth of Nations.1
The principle (and problem) of economics is that human beings have unlimited wants and occupy a world of limited means. For this reason, the concepts of efficiency and productivity are held paramount by economists. Increased productivity and a more efficient use of resources, they argue, could lead to a higher standard of living.
Despite this view, economics has been pejoratively known as the "dismal science," a term coined by Scottish historian Thomas Carlyle in 1849.2 He used it to criticize the liberal views on race and social equality of contemporary economists like John Stuart Mill, though some sources suggest Carlyle was actually describing the gloomy predictions by Thomas Robert Malthus that population growth would always outstrip the food supply.
Types of Economics
The study of economics is generally broken down into two disciplines.
- Microeconomics focuses on how individual consumers and firm make decisions; these individuals can be a single person, a household, a business/organization or a government agency. Analyzing certain aspects of human behavior, microeconomics tries to explain they respond to changes in price and why they demand what they do at particular price levels. Microeconomics tries to explain how and why different goods are valued differently, how individuals make financial decisions, and how individuals best trade, coordinate and cooperate with one another. Microeconomics' topics range from the dynamics of supply and demand to the efficiency and costs associated with producing goods and services; they also include how labor is divided and allocated, uncertainty, risk, and strategic game theory.
- Macroeconomics studies an overall economy on both a national and international level. Its focus can include a distinct geographical region, a country, a continent, or even the whole world. Topics studied include foreign trade, government fiscal and monetary policy, unemployment rates, the level of inflation and interest rates, the growth of total production output as reflected by changes in the Gross Domestic Product (GDP), and business cycles that result in expansions, booms, recessions, and depressions.
Schools of Economic Theory
There are also schools of economic thought. Two of the most common are monetarist and Keynesian. Monetarists have generally favorable views on free markets as the best way to allocate resources and argue that stable monetary policy is the best course for managing the economy. In contrast, the Keynesian approach believes that markets often don’t work well at allocating resources on their own and favors fiscal policy by an activist government in order to manage irrational market swings and recessions.
Economic analysis often progresses through deductive processes, including mathematical logic, where the implications of specific human activities are considered in a "means-ends" framework. Some branches of economic thought emphasize empiricism, rather than formal logic—specifically, macroeconomics or Marshallian microeconomics, which attempt to use the procedural observations and falsifiable tests associated with the natural sciences.
Since true experiments cannot be created in economics, empirical economists rely on simplifying assumptions and retroactive data analysis. However, some economists argue economics is not well suited to empirical testing, and that such methods often generate incorrect or inconsistent answers.
https://www.investopedia.com/terms/e/economics.asp
Questions to consider:
- How realistic are economic models? How can we know what to include or exclude in a model?
- What assumptions do economists make when they apply economic theories to the real world?
- Many economists argue that economics as a social science is in its infancy, and that with time, as empirical testing methods and the quality of data improve, it will become more reliable in making accurate predictions. Do you agree with this statement?
- To what extent does the distinction between positive and normative statements exist in other academic disciplines?
- To what extent have individuals shifted the paradigms of economics?