Economics Chapter 1
Economics is the study of how individuals, businesses and institutions make
choices, to optimize their level of satisfaction under conditions of scarcity
Economic resources - The land, labour, capital and entrepreneurial ability that
are used in the production of goods and services; productive agents; factors of
production
The economic perspective-A viewpoint that envisions individuals and
institutions making rational decisions by comparing the marginal benefits and
marginal costs associated with their action
Scarcity and choice
Limited goods and services
Limited time
Opportunity costs
The opportunity cost of an activity is the value of the next best alternative that
must be forgone in order to undertake this activity
Rational (Purposeful) behaviour
– ‘rational self-interest’ an assumption of economics
– Decisions not free from mistakes or unaffected by emotions or feelings
– Desire to maximize level of satisfaction (utility)
Utility
Utility is the pleasure, happiness or satisfaction obtained from consuming a good
or a service
Concepts of utility
– Cardinal (measurable) vs. ordinal (comparative)
– Choose between options to max U
– Allocation of time, energy and money
Rational consumers
Greatest possible utility with unlimited wants/needs and certain budget
constraints
Rational producers
Maximum profit with cost constraints and certain production techniques
Marginal analysis
The comparison of marginal (‘extra’ or ‘additional’) benefits and marginal costs,
usually for decision making
Marginal = “extra”, “additional” or “a change in”.
,– Marginal costs and benefits
– Decision to obtain the marginal benefit associated with some specific option
always includes the marginal cost of forgoing something else (i.e. opportunity
costs present!
Theories, Principles and Model
Scientific method
The procedure for the systematic pursuit of knowledge involving the observation
of facts and the formulation and testing of hypotheses to obtain theories,
principles and law
Economic principle
A widely accepted generalization about the economic behaviour of individuals or
institutions
ools for ascertaining cause and effect
– Generalizations
Tendencies of typical or average consumers, workers or business firms
– Other-things-equal assumption
(ceteris paribus) The assumption that factors other than those being considered
are held constant; ceteris paribus assumptions
– Graphical expression
Macroeconomics
The part of economics concerned with the economy as a whole; with such major
aggregates as the household, business and government sectors; and with
measures of the total economy
Aggregate
A collection of specific economic units treated as if they were one. For example,
all prices of individual goods and services are combined into a price level, or all
units of output are aggregated into gross domestic product
Microeconomics
The part of economics concerned with decision making by individual units such
as a household, a firm or an industry and with individual markets, specific goods
and services, and product and resource prices
Positive economics
The analysis of facts or data to establish scientific generalizations about
economic behaviour
Normative economics
, The part of economics involving value judgements about what the economy
should be like; focused on which economic goals and policies should be
implemented; policy economic
Economics is the study of how individuals, businesses and institutions make
choices, to optimize their level of satisfaction under conditions of scarcity
Economic resources - The land, labour, capital and entrepreneurial ability that
are used in the production of goods and services; productive agents; factors of
production
The economic perspective-A viewpoint that envisions individuals and
institutions making rational decisions by comparing the marginal benefits and
marginal costs associated with their action
Scarcity and choice
Limited goods and services
Limited time
Opportunity costs
The opportunity cost of an activity is the value of the next best alternative that
must be forgone in order to undertake this activity
Rational (Purposeful) behaviour
– ‘rational self-interest’ an assumption of economics
– Decisions not free from mistakes or unaffected by emotions or feelings
– Desire to maximize level of satisfaction (utility)
Utility
Utility is the pleasure, happiness or satisfaction obtained from consuming a good
or a service
Concepts of utility
– Cardinal (measurable) vs. ordinal (comparative)
– Choose between options to max U
– Allocation of time, energy and money
Rational consumers
Greatest possible utility with unlimited wants/needs and certain budget
constraints
Rational producers
Maximum profit with cost constraints and certain production techniques
Marginal analysis
The comparison of marginal (‘extra’ or ‘additional’) benefits and marginal costs,
usually for decision making
Marginal = “extra”, “additional” or “a change in”.
,– Marginal costs and benefits
– Decision to obtain the marginal benefit associated with some specific option
always includes the marginal cost of forgoing something else (i.e. opportunity
costs present!
Theories, Principles and Model
Scientific method
The procedure for the systematic pursuit of knowledge involving the observation
of facts and the formulation and testing of hypotheses to obtain theories,
principles and law
Economic principle
A widely accepted generalization about the economic behaviour of individuals or
institutions
ools for ascertaining cause and effect
– Generalizations
Tendencies of typical or average consumers, workers or business firms
– Other-things-equal assumption
(ceteris paribus) The assumption that factors other than those being considered
are held constant; ceteris paribus assumptions
– Graphical expression
Macroeconomics
The part of economics concerned with the economy as a whole; with such major
aggregates as the household, business and government sectors; and with
measures of the total economy
Aggregate
A collection of specific economic units treated as if they were one. For example,
all prices of individual goods and services are combined into a price level, or all
units of output are aggregated into gross domestic product
Microeconomics
The part of economics concerned with decision making by individual units such
as a household, a firm or an industry and with individual markets, specific goods
and services, and product and resource prices
Positive economics
The analysis of facts or data to establish scientific generalizations about
economic behaviour
Normative economics
, The part of economics involving value judgements about what the economy
should be like; focused on which economic goals and policies should be
implemented; policy economic
