Learning Unit 1 – What economics
is all about
Micro – economics is divided into 2 categories:
Descriptive economics
Analytical economics
Descriptive economics = describes economic variables such as definitions,
the reasons why we study economics, the different categories of goods and
difference between micro – and macro economics
Analytical economics = Devoted to analyse economic aggregates (ex, what
factors will determine why a person buy a product or why will a person change
his buying habits), the demand side of goods and services.
Definition of economics
“Economics is the study of how people use scarce (limited) resources to
provide for their unlimited wants.” – Richard Lipsey
All the definitions contain the word “scarcity” or describe the concept
“scarcity”.
The study field of economics developed over the years in an attempt to solve
the scarcity problem.
wants are unlimited while the means are limited.
Economics deals with the choices people have to make.
Lionel Robbins set the ton for most modern definitions in the 1930’s by
defining economics as “the science which studies human behaviour as a
relationship between ends and a scarce means which have alternative uses”
George Leland Bach – Economics is the study of how scarce productive
resources are used to satisfy human wants.
Karl Case & Ray Fair – Economics is the study of how individuals & societies
choose to use scarce resources that nature & previous generations have
Extra Information
provided
The Core Team – Economics is the study of how people interact with each
other & with their natural surroundings in providing their livelihoods & how this
changes over time
Richard Eckhaus – Economics is the study of how scarce resources are
allocated among various uses
Jack Harvey – Economics is the study of how people allocate their limited
resources to provide for all their wants
N George Mankiw – economics is the study of how society manages its
scarce resources
Created by Pastthattest
Note: This document is protected under the Copyright Act
Illegal distribution of the document is not allowed
, Economics seek to describe, explain, analyse and predict a variety of
phenomena such as economic growth, unemployment, inflation, prices of
different goods and services, poverty, wealth and interest rates.
Economics as a science
= behaviour of human being is changing environment vs natural science controlled
environment (ex. Chemistry)
- Ceteris paribus = ‘all things being equal’ to explain unpredictable outcomes
- Why do we use ceteris paribus = the law of demand states a definite
relationship between price of product and the quantity of demand for it
If we have more than one variable, we would not know & understand
the impact of a certain variable and the change there-of
- The patters are used to explain what’s happening, to predict what might
happen and to assist policy makers to devise or chose appropriate economic
policies
- Economics is a social science as it attempts to explain human behaviour
(How do we behave when economic variables change) and studies the
behaviour of human beings, both individually and as groups.
- The study is conducted under ever changing conditions which forces the
economist to conduct their research by making various assumption (natural
science is conducted under controlled conditions)
- Natural science differs from social science iro what is studied, how its studied
and the nature of their generalisations.
- Economics is an empirical science = actual experiences are studied and
measured
Measurements is generally far less precise in economics than in
natural science
-
Macroeconomics
= overall economic performance
- Concerned with the economic issues that involve the overall economic
performance of the economy, rather than that of particular individuals,
markets or firms
- Topics: total production, total income, total expenditure, economic growth etc
The prefix “macro” comes from the Greek word “makros” meaning large
- In macroeconomics, we focus on the big picture
- We develop an overall view of the economic system and we study total or
aggregate economic behaviour
- Macroeconomics = the study of performance of the national and global
economics
- Macroeconomics is therefore the world of totals
Created by Pastthattest
Note: This document is protected under the Copyright Act
Illegal distribution of the document is not allowed
,Microeconomics
= behaviour of individuals
- Concerned with issues that involve the economic behaviour of individuals,
households and firms.
- The prefix “micro” comes from the Greek word “mikros” meaning small/
- In microeconomics, the decisions or functioning of the decision makers such
as individual consumers, households, firms or other organizations are
considered in isolation from the rest of the economy
- microeconomics = the study of choices that individuals and businesses make,
they way those choices interact in markets, and the influence of the
government.
- The individual elements of the economy is, figuratively, each put under the
microscope and examined in detail.
- Ex. Study of decisions of individual households (what to do, what to buy), how
to produce them and what prices to charge.
- Also includes the study of demand, supply and prices of individual goods and
services.
Micro Economics Macro Economics
Price of a single product The Consumer Price Index
Change in the price of a product Inflation
The production of maze Total output of all goods & services in
the economy
Decisions of individual consumers Combined outcome of the decisions of
all consumers in the country
Decisions of individual firms/businesses Combined decisions of all firms
The market for individual goods Market for all goods & services
Demand for products Total demand for all goods & services
An individual’s decision whether to work Total supply of labour in the country
or not
A firm’s decision whether to expand Changes in the total supply of goods &
production services in the economy
A firm’s decision to export Total exports of goods & services to
other countries
A firm’s decision to import Total imports of goods & services from
other countries
Positive vs normative statements
- Positive statements = objective statement of fact (what is)
Statement about what is and contains no indication of approval or
disapproval
Positive statements can be wrong
ex: “in 2003 the unemployment rate in SA was 3%”. It’s incorrect since
it was much higher than 3%, but it’s a positive statement bc it is a
statement about what exists
Created by Pastthattest
Note: This document is protected under the Copyright Act
Illegal distribution of the document is not allowed
, - Normative statements = opinion or value judgement (what ought to be)
involves an opinion or value judgement
it expresses a judgement about what ought to be
normative issues can be debated but they can never be settled by
science or an appeal to the facts
ex: “the minimum wage is a good thing”
Scarcity, Choice and Opportunity Cost
Economics is concerned with scarcity
Wants are not the same as needs and demand:
Wants are human desires for goods and services
o Want = desire of a person for something he wants but cannot
pay for it
o Represents all the things we as consumers want
Needs are necessities, the things that’s essential for survival (food,
water, shelter, clothing)
o Needs, unlike wants, are not absolutely unlimited – it’s possible
to calculate the basic needs that have to be met if a person or
household is to survive.
Demand differs from wants, desires and needs. There’s a demand for
goods and services only is those who want to purchase it have the
necessary means to do so.
o Demand must be backed by purchasing power
o Demand = quantity of a good or service a consumer wants and
can pay for
Supply – the entrepreneur of the firm (canteen) is guided by the
demand of the consumer and will stock goods on the shelf for those
consumers who have the money to pay for the goods
o Firms stock goods that are in demand, not goods that people
have a desire for
o Thus, the supply of the goods & services by the firm are aimed
at satisfying the demand
o The firm produces only what it anticipated to sell
o The supply will depend on the demand for the product and the
cost to produce it with scarce resources.
Scarcity emerges from two fronts:
o Consumer = do not have the means to buy the goods and services that
they want. They can only buy what they can afford
o Producers = cannot produce all the goods and services consumers
want. Resources are limited in quantity and quality.
o Scarcity exists because the consumer wants more than their means
and the resources to provide it is limited
Created by Pastthattest
Note: This document is protected under the Copyright Act
Illegal distribution of the document is not allowed
is all about
Micro – economics is divided into 2 categories:
Descriptive economics
Analytical economics
Descriptive economics = describes economic variables such as definitions,
the reasons why we study economics, the different categories of goods and
difference between micro – and macro economics
Analytical economics = Devoted to analyse economic aggregates (ex, what
factors will determine why a person buy a product or why will a person change
his buying habits), the demand side of goods and services.
Definition of economics
“Economics is the study of how people use scarce (limited) resources to
provide for their unlimited wants.” – Richard Lipsey
All the definitions contain the word “scarcity” or describe the concept
“scarcity”.
The study field of economics developed over the years in an attempt to solve
the scarcity problem.
wants are unlimited while the means are limited.
Economics deals with the choices people have to make.
Lionel Robbins set the ton for most modern definitions in the 1930’s by
defining economics as “the science which studies human behaviour as a
relationship between ends and a scarce means which have alternative uses”
George Leland Bach – Economics is the study of how scarce productive
resources are used to satisfy human wants.
Karl Case & Ray Fair – Economics is the study of how individuals & societies
choose to use scarce resources that nature & previous generations have
Extra Information
provided
The Core Team – Economics is the study of how people interact with each
other & with their natural surroundings in providing their livelihoods & how this
changes over time
Richard Eckhaus – Economics is the study of how scarce resources are
allocated among various uses
Jack Harvey – Economics is the study of how people allocate their limited
resources to provide for all their wants
N George Mankiw – economics is the study of how society manages its
scarce resources
Created by Pastthattest
Note: This document is protected under the Copyright Act
Illegal distribution of the document is not allowed
, Economics seek to describe, explain, analyse and predict a variety of
phenomena such as economic growth, unemployment, inflation, prices of
different goods and services, poverty, wealth and interest rates.
Economics as a science
= behaviour of human being is changing environment vs natural science controlled
environment (ex. Chemistry)
- Ceteris paribus = ‘all things being equal’ to explain unpredictable outcomes
- Why do we use ceteris paribus = the law of demand states a definite
relationship between price of product and the quantity of demand for it
If we have more than one variable, we would not know & understand
the impact of a certain variable and the change there-of
- The patters are used to explain what’s happening, to predict what might
happen and to assist policy makers to devise or chose appropriate economic
policies
- Economics is a social science as it attempts to explain human behaviour
(How do we behave when economic variables change) and studies the
behaviour of human beings, both individually and as groups.
- The study is conducted under ever changing conditions which forces the
economist to conduct their research by making various assumption (natural
science is conducted under controlled conditions)
- Natural science differs from social science iro what is studied, how its studied
and the nature of their generalisations.
- Economics is an empirical science = actual experiences are studied and
measured
Measurements is generally far less precise in economics than in
natural science
-
Macroeconomics
= overall economic performance
- Concerned with the economic issues that involve the overall economic
performance of the economy, rather than that of particular individuals,
markets or firms
- Topics: total production, total income, total expenditure, economic growth etc
The prefix “macro” comes from the Greek word “makros” meaning large
- In macroeconomics, we focus on the big picture
- We develop an overall view of the economic system and we study total or
aggregate economic behaviour
- Macroeconomics = the study of performance of the national and global
economics
- Macroeconomics is therefore the world of totals
Created by Pastthattest
Note: This document is protected under the Copyright Act
Illegal distribution of the document is not allowed
,Microeconomics
= behaviour of individuals
- Concerned with issues that involve the economic behaviour of individuals,
households and firms.
- The prefix “micro” comes from the Greek word “mikros” meaning small/
- In microeconomics, the decisions or functioning of the decision makers such
as individual consumers, households, firms or other organizations are
considered in isolation from the rest of the economy
- microeconomics = the study of choices that individuals and businesses make,
they way those choices interact in markets, and the influence of the
government.
- The individual elements of the economy is, figuratively, each put under the
microscope and examined in detail.
- Ex. Study of decisions of individual households (what to do, what to buy), how
to produce them and what prices to charge.
- Also includes the study of demand, supply and prices of individual goods and
services.
Micro Economics Macro Economics
Price of a single product The Consumer Price Index
Change in the price of a product Inflation
The production of maze Total output of all goods & services in
the economy
Decisions of individual consumers Combined outcome of the decisions of
all consumers in the country
Decisions of individual firms/businesses Combined decisions of all firms
The market for individual goods Market for all goods & services
Demand for products Total demand for all goods & services
An individual’s decision whether to work Total supply of labour in the country
or not
A firm’s decision whether to expand Changes in the total supply of goods &
production services in the economy
A firm’s decision to export Total exports of goods & services to
other countries
A firm’s decision to import Total imports of goods & services from
other countries
Positive vs normative statements
- Positive statements = objective statement of fact (what is)
Statement about what is and contains no indication of approval or
disapproval
Positive statements can be wrong
ex: “in 2003 the unemployment rate in SA was 3%”. It’s incorrect since
it was much higher than 3%, but it’s a positive statement bc it is a
statement about what exists
Created by Pastthattest
Note: This document is protected under the Copyright Act
Illegal distribution of the document is not allowed
, - Normative statements = opinion or value judgement (what ought to be)
involves an opinion or value judgement
it expresses a judgement about what ought to be
normative issues can be debated but they can never be settled by
science or an appeal to the facts
ex: “the minimum wage is a good thing”
Scarcity, Choice and Opportunity Cost
Economics is concerned with scarcity
Wants are not the same as needs and demand:
Wants are human desires for goods and services
o Want = desire of a person for something he wants but cannot
pay for it
o Represents all the things we as consumers want
Needs are necessities, the things that’s essential for survival (food,
water, shelter, clothing)
o Needs, unlike wants, are not absolutely unlimited – it’s possible
to calculate the basic needs that have to be met if a person or
household is to survive.
Demand differs from wants, desires and needs. There’s a demand for
goods and services only is those who want to purchase it have the
necessary means to do so.
o Demand must be backed by purchasing power
o Demand = quantity of a good or service a consumer wants and
can pay for
Supply – the entrepreneur of the firm (canteen) is guided by the
demand of the consumer and will stock goods on the shelf for those
consumers who have the money to pay for the goods
o Firms stock goods that are in demand, not goods that people
have a desire for
o Thus, the supply of the goods & services by the firm are aimed
at satisfying the demand
o The firm produces only what it anticipated to sell
o The supply will depend on the demand for the product and the
cost to produce it with scarce resources.
Scarcity emerges from two fronts:
o Consumer = do not have the means to buy the goods and services that
they want. They can only buy what they can afford
o Producers = cannot produce all the goods and services consumers
want. Resources are limited in quantity and quality.
o Scarcity exists because the consumer wants more than their means
and the resources to provide it is limited
Created by Pastthattest
Note: This document is protected under the Copyright Act
Illegal distribution of the document is not allowed
