11/04/2013

Introduction: Basic Concepts

EC 102. Basic Economics, & Historical Overview
Agrarian Reform, and Taxation •Economics, Queen of Social Sciences
-Economics encompasses various fields of the
Social Sciences
Lecture 1
-Economics has a certain sophistication by using
scientific methods for creation of models and
Introduction, Basic Concepts & Historical
analyses as well as the use of data and statistics
Overview
(i.e. Econometrics)
•Prisoners of the Queen
-Economics is part of everyday life.
-People are Rational Economic Beings.
NAS Cabiles 1 NAS Cabiles 2

Introduction: Basic Concepts Introduction: Basic Concepts

& Historical Overview & Historical Overview
•Formal Definition: •2 vital points of Economics
“How societies use scarce resources to a. Scarcity
produce commodities and distribute them -if everything is abundant, the price is zero
among different people.” and there is no need for allocation and no
•Note: The allocation has to be Efficient such a thing as Economic Goods (i.e.
•Economics is the efficient allocation of scarce Economics becomes useless!)
resources. b. Efficiency
-when resources are used in such a way that
people can get as much as they can get
(specific to their wants and needs)
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Illustration of Scarcity: Illustration of Scarcity:

Production Possibilities Production Possibilities
Frontier Frontier
Food •Points on the PPF: Food •Opportunity Cost
A,B –efficient
•Opportunity Cost is
Q A .D C-inefficient/unemployment D
F4 increasing as more and
D-infeasible
more of the alternate
F3 C
good is produced.
.C F2 B
S B
F1 A

Clothing Clothing
R T C4 C3 C2 C1

Illustration of Scarcity: Introduction: Basic Concepts

Production Possibilities & Historical Overview
Frontier •2 Branches of Economics
Food •PPF Expansion a. Microeconomics
a. Discovery/Increase of -behaviour of individual entities (i.e. firms and
resources households) and their interactions (markets)
b. Investment
.F c. Technological
E b. Macroeconomics
Advancement
-overall performance of the economy
(national income/output, price levels,
employment)
Clothing NAS Cabiles 8

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Introduction: Basic Concepts Introduction: Basic Concepts

& Historical Overview & Historical Overview
•Fallacies on Economic Reasoning •Fallacies on Economic Reasoning
a. post hoc fallacy c. fallacy of composition
-assumes that because one event occurred -assumes that what holds part of the system
before another, the previous one caused the applies for the entire system
succeeding event
not all the time

not true
b. failure to hold things constant (ceteris paribus
assumption)

always take note to hold other things
constant
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