ECONOMICS A 3-1 SUBJECT?

project date 20/09/2007

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I want a fur coat! I want a full stomach!

Lets compromise

The bear ate the manthey both got what they wanted.
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Take the initiative Fight the issue not the person Take control of your day and life Be decisive

Source: JL Mason

GOALS
Understand why economics is 1. Science
Differentiate
2. Art 3. Social science

Microeconomics vs. Macroeconomics Positive vs. Normative Analysis Theories vs. Models

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ECONOMICS is like

SCIENCE
Nescafe 3-1 coffee

SOCIAL SCIENCE ARTS

Cork-can-bottle opener 3-in-1 printer, fax and photocopying machine

SCIENCE

Economics uses SCIENTIFIC APPROACH OR METHOD in studying economic events or phenomena

What a science (economics) does or should do is simply allow the average man to command the heights of a genius. (James Buchanan)

PHYSICAL SCIENCES Uses scientific approach Experiments in laboratories Uses experimental data Uses statistics

ECONOMICS Uses scientific approach No experiments in laboratories; society is the laboratory uses real or actual data of people or nonexperimental data Uses statistics

ARTS

ECONOMICS AS AN ART?
Art is a skill acquired by experience, discipline, study or observation Skill in applying economic tools or principles in real life situation

The business world could use all the art, all of the out-of-the-box thinking , all the innovative problem solving that it can find. Creativity (art) can be integrated into every aspect of business

SOCIAL SCIENCE

ECONOMICS AS A SOCIAL SCIENCE?

It is a social science because it studies society or people in the economy It studies the economic behavior of man in the market Needed to change/improve society

MICROECONOMICS VS. MACROECONOMICS

MIC-MAC

Microscope

Telescope

WHATS THE DIFFERENCE?

MICROECONOMICS

MACROECONOMICS

MIcroeconomics = Individual / Specific

Two major fields/divisions 1. Microeconomics = Parts, Trees About INDIVIDUAL economic units such as CONSUMER and FIRM, INDUSTRY, How they make decisions and how they interact in specific markets MARKET ECONOMICS

MAcroeconomics = Aggregate, All , General

2. Macroeconomics = Whole, Forest Studies how the economy behaves as a whole Countrys output, general price level, national income and employment and unemployment, balance of payments and exchange rates NATIONAL ECONOMICS

Micro vs Macro
An individual or a family decides to buy a laptop A firms production of a good The price of notebook, pen, etc All consumers demands for all goods Total production of goods of all firms The general price of all goods and services

3 IN 1 Science, Social Science and Art

TWO MAJOR FIELDS

Microeconomics Macroeconomics TWO TYPES OF ANALYSES / STATEMENTS Positive Normative

RED APPLE OR GREEN APPLE

POSITIVE ANALYSIS

NORMATIVE ANALYSIS

POSITIVE ANALYSIS

NORMATIVE ANALYSIS

ECONOMIST AS A SCIENTIST
Uses POSITIVE ANALYSIS Uses facts and determines cause-andeffect relationships Develops and tests theory Does not use personal value judgment Can be proven/rejected Answers the basic question WHAT IS

ECONOMIST AS POLICYMAKER
Uses NORMATIVE ANALYSIS Incorporates value judgment about the economy Recommends/prescribes policy actions to achieve desired economic change or goal Makes claim about how the economy OUGHT TO BE

POSITIVE vs. NORMATIVE

WHAT IS? Describes using facts and numbers Cause and effect relationship Uses scientific analysis
Statement of facts

WHAT OUGHT TO BE? Prescribes or recommends policies Incorporates value judgment

Statement of values

POSITIVE vs. NORMATIVE

Statement of facts Statement of values

POSITIVE vs. NORMATIVE

WHAT IS? The economy has grown by 4.7% in 2008. Last years growth was recorded at 7.3%. WHAT OUGHT TO BE? Economic growth should be continuing and consistent so that poverty will be eliminated!

POSITIVE vs. NORMATIVE

WHAT IS? The current bank lending interest rate is noted at 9.7% in 2006 from 10.2% last year. WHAT OUGHT TO BE? Interest rate ought to be low to stimulate business and investment in the country

2 Branches/ Fields

2 Types of Analyses

3-1 Discipline

MICROECONOMICS

Positive What is, was, will be

SCIENCE ART Applied Economics SOCIAL SCIENCE

MACROECONOMICS

Normative What ought to be?

1-2-3
A well tested and accepted theory becomes a law or principle

LAWS OR PRINCIPLES

THEORY
HYPOTHESIS
As hypothesis is proven true, it evolves into a theory

Statement that needs to be tested/proven

THEORIES vs. MODEL

STATEMENTS about economic behavior that enable the prediction of the probable effects of certain actions FORMAL STATEMENT OF A THEORY usually in the form of mathematical equation diagram or graph

THEORIES vs. MODEL

Law of Demand states that as price of the good increases, quantity demanded falls, ceteris paribus (all else equal)

Qd = 10 - 2P
P

Qd

DIVERSE FIELDS OF ECONOMICS

Urban and regional economics Econometrics Economic Development Labor Economics International Economics Public Economics Economic History Many more

QUALITIES NEEDED TO STUDY ECONOMICS

Analytical and logical and desiring to learn just like a philosopher

QUALITIES NEEDED TO STUDY ECONOMICS

Can work with some numbers just like a mathematician

QUALITIES NEEDED TO STUDY ECONOMICS

Interest in research and knowledgeable with past and current issues just like an historian

QUALITIES NEEDED TO STUDY ECONOMICS

Considerate of the welfare of the people just like a statesman

Group exercise

3 ounce

5 ounce

8 ounce

The largest glass is full. What can you do to get 4 ounces of liquid into each of the larger two glasses?

LET US APPLY WHAT WE HAVE LEARNED!