First what is Economics?

Economic is the study of how human being coordinate their wants and desire given decision making, social customs and political realities of that
society

Adam Smith Marshal Robbins Samuelson Colander Michael Parkin

Definition Study of nature and The study of men how Economics study Economic study how Economics study how Economics study the
causes of nations they live, move and human behavior as a people and society humans coordinate choices that individual
wealth think in ordinary relation between ends choose with or without their wants and desire business and
business life and scarce means the use of money to through decision government make to
employ scarce making , social cope with the scarcity
resources to produce customs and political of resources and the
commodities over time realities of society incentives that
and distributing them influence these chocies
for consumption
According to  Economic is a  Human wants  Growth
definition social science are unlimited orientation
 Economic  Resources are  Dynamic
study ordinary scarce allocation of
business of life  Society have to resources
 Economic make choices  Distribution of
study only of what to resources
material satisfy first  Improvement
welfare in allocation of
resources
Criticism 1- To narrow 1- Doesn’t 1- Focusing much
didn’t consider include non- on individual
the major material choices
problem faced welfare 2- The root of all
by society 2- Production of economic
2- Ignored non- war material problem is the
material are economic scarcity of
aspects of activity but resources
human life doesn’t without having
3- Central focus promote the any human
of economics welfare of touch
should be society
scarcity and 3- Welfare is not
choices measurable
 Difference between microeconomics and macroeconomics

Microeconomics Macroeconomics
Is a branch of economics that deals with the decision making Is a branch of economics that deals aggregates and average
of individuals of entire economy
Example : Example:
Individual income National savings
Individual consumption Aggregate investment
Individual saving National output
Individual expenditure General price level
Individual investment Inflation and deflation
It take into account small components of the economy It take into account the whole economy
Known as price theory Known as income theory
It concerns with the optimization of goals of individual It concerns with the optimization of goals of entire economy
It study the flow of economic resources from individual to It study the circular flow of income and expenditure
another individual between different sectors in the economy
Help in making appropriate policies for resource allocation Help in making appropriate policies for controlling price level

Three economic Questions

1- What and how much to produce

2- How to produce it (Factors of production)
a- Land : the natural resources above and under the surface of the land
b- Labor : the human capital available to transform resources into goods
c- Capital : represent the monetary resources (money ) and physical assets (machines) used to produce goods and
services
d- Entrepreneur : the person who supply product to the market to make profit
3- For whom to produce
a- Land earn rent
b- Labor earn wages
c- Capital earn interest
d- Entrepreneur earn profit

Scarcity: the condition of limited and unlimited wants and needs

Limited resources ---- Scarcity of goods and services --- Unlimited wants and needs -- must make choices

a- Absolute Scarcity : there is insufficient quantities of resources to meet human wants and needs
b- Relative Scarcity : there may be physical resources but there is a problem about supply and distribution

How society deal with Scarcity:

1- Economic growth to increase economic resources

2- Reduce our wants
3- Improve the use of existing resources
Economic way of thinking

1- Choice is a trade off

2- Rational choices
3- Benefit
4- Cost
5- Most choices are how much
6- Choices responds to incentives

Opportunity Cost: is the benefit forgone for the next best alternative to the activity you have chosen

Production Possibility model: Is a curve that show the tradeoff among choices we have

Shift in the PPC

1- Improvement of technology
2- Discovering resources
3- Improving economic institution
 Income accounting: set of rules and definitions for measuring economic activity

Gross Domestic Product: the total value of all final goods and services produced in a given county at a given period

Gross national Product: the aggregate final output of citizens and business in an economy in one year

Gross: before deducting depreciation of capital

Depreciation: decrease in the value of the firm capital due to wear and tear

Gross investment: total amount spent on purchases of capital

Net investment: the increase in the value of the firm capital

Net investment = Gross investment – Depreciation

Three ways of measuring GDP

Expenditure approach Income Approach Value added approach

 Consumption  Income from people in jobs  Value added from each of the
 Government spending  Profit of private sectors main sectors
 Investment - Primary
 Change in value of stocks - Secondary
 Export – import - Manufacturing
- Quaternary

GDP = C + I + G + (x-M)