Structure
1. Introduction to Economics
2. Mankiw´s Priciples of the Economies
3. A rst Glimpse of Economic Analysis
4. Basic Concept of Macroeconomics
5. Production Possibility Frontier (PPF)
6. Demand, Supply, and Market Equilibrium
7. Demand and Supply Shocks, the Price Mechanism and Government Intervention
1-Introduction to Economics
Adam Smith & Alfred Marshall
What is economics?
„Economics is the science of Human Behavior as relationship between ends and scarce means
which have alternative uses“ - Lionel Robbins
- Human wants are unlimited (you can’t measure the wants of ppl)
- Means (Resources) are limited to ful ll them (everything is limited (income, places, time, health))
- Wants are not equally important (you can never say who’s wants are more important)
- Means have alternative uses (cars for transporting ppl but also for transporting goods)
Economics = the science of the management of the scarce social resources
Macroeconomics Microeconomics
The study of economy-wide phenomena, including The study of how households and rms make
in ation, unemployment and economic growth decisions and how they interact in markets
Economic theory and economic policy
E-theory E-policy
A set of ideas and principles that attempts to Covers a wide range of measures which
explain economic phenomena, to interpret why and governments use to manage their economy
how the economy behaves and to nd the best
solution for it
How does a relevant parameter (A) impact on If a particular value of B is to be achieved, which
another parameter (B)? = A->B change in A is required and how can economic
policy bring about this change?
>economic policy is based on economic theory
4 best-known macroeconomic objectives
flfi fi fi
, Factors of production
Scarcity & satisfaction of needs
Key question: How to generate a maximum of output with a given amount of resources?
>e ciency
E ciency as the main object
- is achieved if the resources are used optimally
- In production, allocation and distribution
Productive e ciency:
- Firms seek to maximize their pro ts by bringing in the most revenue while minimizing costs
Allocative e ciency:
- Individuals seek to maximize their well-being by consuming combinations of nal goods that
produce the highest total satisfaction of their wants and needs at the lowest cost
Distributive e ciency:
- because each individual values goods di erently, the nal goods in economy are distributed so
that each unit is consumed by the individual who values that unit the most compared to all
other individuals
ffiffi ffiffi
ffi fi ff fi fi
, Market economy vs. planned economy
Problems of the pure market economy
- Market failures (ine ciency)
- asymmetric information
- Monopoly and oligopoly
- Negative externalities
- Lack of public goods
- = Allocation policies are necessary
- The market economy can be inhuman
- = distribution policies are necessary
- The market economy can be environment-unsustainable
- = sustainability policies are necessary
= Government intervention is necessary: social market economy (mixed economy)
Social market economy (mix of market and planned economy)
It can be considered an economic system using the framework of a market economy but aiming
at social security and equity by means of political measures in line with the marke
ffi
1. Introduction to Economics
2. Mankiw´s Priciples of the Economies
3. A rst Glimpse of Economic Analysis
4. Basic Concept of Macroeconomics
5. Production Possibility Frontier (PPF)
6. Demand, Supply, and Market Equilibrium
7. Demand and Supply Shocks, the Price Mechanism and Government Intervention
1-Introduction to Economics
Adam Smith & Alfred Marshall
What is economics?
„Economics is the science of Human Behavior as relationship between ends and scarce means
which have alternative uses“ - Lionel Robbins
- Human wants are unlimited (you can’t measure the wants of ppl)
- Means (Resources) are limited to ful ll them (everything is limited (income, places, time, health))
- Wants are not equally important (you can never say who’s wants are more important)
- Means have alternative uses (cars for transporting ppl but also for transporting goods)
Economics = the science of the management of the scarce social resources
Macroeconomics Microeconomics
The study of economy-wide phenomena, including The study of how households and rms make
in ation, unemployment and economic growth decisions and how they interact in markets
Economic theory and economic policy
E-theory E-policy
A set of ideas and principles that attempts to Covers a wide range of measures which
explain economic phenomena, to interpret why and governments use to manage their economy
how the economy behaves and to nd the best
solution for it
How does a relevant parameter (A) impact on If a particular value of B is to be achieved, which
another parameter (B)? = A->B change in A is required and how can economic
policy bring about this change?
>economic policy is based on economic theory
4 best-known macroeconomic objectives
flfi fi fi
, Factors of production
Scarcity & satisfaction of needs
Key question: How to generate a maximum of output with a given amount of resources?
>e ciency
E ciency as the main object
- is achieved if the resources are used optimally
- In production, allocation and distribution
Productive e ciency:
- Firms seek to maximize their pro ts by bringing in the most revenue while minimizing costs
Allocative e ciency:
- Individuals seek to maximize their well-being by consuming combinations of nal goods that
produce the highest total satisfaction of their wants and needs at the lowest cost
Distributive e ciency:
- because each individual values goods di erently, the nal goods in economy are distributed so
that each unit is consumed by the individual who values that unit the most compared to all
other individuals
ffiffi ffiffi
ffi fi ff fi fi
, Market economy vs. planned economy
Problems of the pure market economy
- Market failures (ine ciency)
- asymmetric information
- Monopoly and oligopoly
- Negative externalities
- Lack of public goods
- = Allocation policies are necessary
- The market economy can be inhuman
- = distribution policies are necessary
- The market economy can be environment-unsustainable
- = sustainability policies are necessary
= Government intervention is necessary: social market economy (mixed economy)
Social market economy (mix of market and planned economy)
It can be considered an economic system using the framework of a market economy but aiming
at social security and equity by means of political measures in line with the marke
ffi
