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Chapter 1
Introduction to Economics
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Chapter 1
Introduction to Economics
Economics
is a social science that deals with the efficient allocation of scarce resource to satisfy human unlimited needs and wants.
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Chapter 1
Introduction to Economics
Economics
is the study of choice under the condition of scarcity.
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Chapter 1
Introduction to Economics
Two Main Activities in the Economy
1.Production - the art of producing something
2.Consumption- the art of consuming something
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Introduction to Economics
Goals of Economics
1.To strengthen economic freedom.2.To promote economic efficiency.3.To promote economic stability4.To promote economic security5.To attain a high level of growth in the economy.
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Introduction to Economics
Relationship with other social sciences
1.Anthropology2.Political Science3.Sociology4.Psychology5.History
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Introduction to Economics
Two Main Branches of Economics
1.Microeconomics- the study of the behavior of
individual households, firms, and government, the choices they make and their interaction in specific markets and individuals
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Introduction to Economics
Two Main Branches of Economics
2.Macroeconomics- The study of the economy as a
whole.
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Introduction to Economics
Scientific Methodologies of Economics
1. Normative Economics- The study of what should be; it is
used to make value judgments, identify problems, and prescribe solutions.
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Introduction to Economics
Scientific Methodologies of Economics
2.Positive Economics- The study of what is, of how the
economy works.
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Introduction to Economics
Adam Smith (1723 – 1790)
• Father of Economics• An Inquiry in the Nature and Causes
of the Wealth of Nations, 1776 (900-page economic treatise)
• Believes in the division of labor, harmony of interest and limited government.
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Introduction to Economics
Adam Smith (1723 – 1790)
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Introduction to Economics
John Maynard Keynes (1883 – 1946)
• Father of Macroeconomics• The General Theory of Employment,
Interest and Money, 1938• Believes in government intervention
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Introduction to Economics
John Maynard Keynes (1883 – 1946)
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Chapter 1
Introduction to Economics
Milton Friedman (July 31, 1912 – November 16, 2006)
• A Theory of the Consumption Function, 1957
• Nobel-prize winning economist• Optimizing behavior• Rejection of Keynesianism• Believes in limited government
intervention
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Chapter 1
Introduction to Economics
Milton Friedman (July 31, 1912 – November 16, 2006)
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Introduction to Economics
Two Fundamental Assumptions in Economics
Fundamental Assumption # 1:
Every economic decision maker tries to make the best out of any situation.
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Introduction to Economics
Two Fundamental Assumptions in Economics
Fundamental Assumption # 2:
Every economic decision maker faces constraints.
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Chapter 1
Introduction to Economics
The Eight Basic Principles of Economics
•Maximization Subject to Constraints•Opportunity Cost•Specialization and Exchange•Markets and Equilibrium•Short-run versus Long-run
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Chapter 1
Introduction to Economics
The Eight Basic Principles of Economics
•Marginal Decision Making•Policy Tradeoffs•The Importance of Real Values
