Economics

The study on how the individuals and societies choose to use the scarce resources that nature and previous generations have provided

Why Study Economics?

To Learn Way of Thinking
Opportunity Cost The best alternative that we forgo, or give up, when we make a decision or a choice. Marginalism In weighing the costs and benefits of a decision, it is important only to weigh the costs and benefits that arise from the decision.

 Sunk Cost Cost that cannot be avoided, regardless of what is done in the future, because they have already incurred. Efficient Market No Free Lunch A market in which profit opportunities are eliminated almost instantaneously.

To Understand Society Past and present economic decisions have an enormous influence on the character of life in a society.

To Understand Global Affairs An understanding of economics is essential to an understanding of global affairs.

To be an informed Voter When we participate in the political process, we are voting on issues that require a basic understanding of economics.

Division of Economics Microeconomics The branch of economics that examines the functioning of individual industries and behavior of individual decisionmaking units-that is, business firms and households.

 Macroeconomics The branch of economics that examines the economic behavior of aggregates-income, employment, output, and so on- on a national scale.

Method of Economics
Positive Economics An approach to economist that seeks to understand behavior and the operation of system without making judgments. It describes what exist and how it works.

Normative An approach to economics that analyzes outcomes of economic behavior, evaluate them as good or bad, and may prescribe course of action. It is also called policy economics.

 Descriptive economics The compilation of data that described phenomenon and facts.

Theories and Models

Economic Theory A statement or set of related statements about cause and effects

 Model A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.

 Variables A measure that can be change time to time or from observation to observation. Empirical Economics The collection and use of data to test economic theories.

 Ceteris paribus A device use to analyze the relationship between two variables while the values of other variables are held unchanged.

Economic Policy What do we want to happen to our economy? What do we want to change?

Efficiency Allocative efficiency in economics. An efficient economy is one that produces what people want at the least possible cost.

 Equity - Different in equality, its fairness Economic growth An increase in the total output of an economy Stability A condition in which output is steady or growing, with low inflation and full employment of resources.

Economic Reality
Generalization of the real economic condition

Economic Theory
Generalization of the economic behaviour of individuals or institution.

Scientific Method
Problem Statement Hypothesis Setting Data Gathering Empirical Testing
Experimentation

Laying Down Conclusion

Theory

Formulation of Policy

Tools of Economics
Common sense, imagination and memory Rules of Logic Logical Fallacies Geometry Higher Mathematics Statistics