Economics Defined

“Economics is the study of how societies use scarce resources to produce valuable goods and services and distribute them among different individuals.”

Samuelson and Nordhaus, Economics,2009.

“Economics is the study of mankind in the ordinary business life.”

Alfred Marshall, Principles of Economics, 1890.

Subfields

Microeconomics is the branch of economics concerned with the behavior of individual entities such as households, firms and markets.

Macroeconomics is concerned with the overall performance of the economy.

Problems in Microeconomics

Market forces of supply and demand

Consumer Choice

Firm Behavior and Organization

Market structure

Social welfare : balancing efficiency and equality

Design of tax system

Management of public goods and common resources

Problems in Macroeconomics

National Income

Economic growth and development

Inflation

Unemployment

Government budget deficit

Exchange rate

Interest rate and capital flow

Mankiw’s Basic Principles

Trade-offs People face trade-offs.

Opportunity cost The cost of something is what you give up to get it.

Mankiw’s Basic Principles

Marginal analysis Rational people think at the margins.

Incentives People respond to incentives.

Mankiw’s Basic Principles

Trade Trade can make everyone better off.

Efficiency of Markets Markets are usually a good way to organize

economic activity.

Mankiw’s Basic Principles

Government intervention Government can sometimes improve market

outcomes.