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Me intro-091004113611-phpapp01


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Me intro-091004113611-phpapp01

  1. 1. “Welcometo theWonderfulWorld of ”Economics
  2. 2. “The word "economics“has its origin in the Greek"oikonomikós"(relating to household ”management), from"oikos" (house).
  3. 3. “Economics studies how societymanages its scarce resources.----------------------------------------How people make decisions:How much they work, ”What they buy,How much they save or invest...
  4. 4. “Economics studies how societymanages its scarce resources.----------------------------------------How people interactwith each other:How buyers and sellers ”Together determine the price,and quantity of goods sold...
  5. 5. “Economics studies how societymanages its scarce resources----------------------------------------How the Economy as aWhole Works:Analyze the forces and trendsthat affect the economy:Growth in average income,unemployment, inflation etc.
  6. 6. “ ”How People Make Decisions
  7. 7. Four Principles of Individual Decision-Making1 People Face Trade-offsa Guns or Butter?b Efficiency or Equity? Good decisions are madec when options are known
  8. 8. Four Principles of Individual Decision-Making2 Cost is What You Give-Upa Not all costs are perceivedb Some costs are ignored Opportunity Cost is whatever must be givenc up to obtain some item
  9. 9. Four Principles of Individual Decision-Making Rational People Think3 at the Margina Decisions are rarely black and white Marginal changes are small incrementalb adjustments to a plan of action Marginal costs and marginal benefits arec compared to make decisions
  10. 10. Four Principles of Individual Decision-Making4 People Respond to Incentives Behaviour changes, as costsa or benefits change There are direct and indirectb costs and benefits Incentives and opportunity costsc are compared in decision making
  11. 11. “ ”How People Interact
  12. 12. Three Principles of Individual Interaction Trade Makes Everyone1 Better Offa Competition and Trade is not a Win-Lose Affairb Isolation to Specialisationc Partners in Progress
  13. 13. Three Principles of Individual Interaction Markets Usually Organize2 Economic Activities Efficiently Market Economy: Resource allocation witha decentralised decision making as individual and firms interact for goods and servicesb Adam Smith: “Invisible Hand” leads to desirable outcomes Communism: Controls prevent self-correctionc and affect welfare of society as a whole
  14. 14. Three Principles of Individual Interaction Governments Can Sometimes3 Improve Market Outcomesa Market failure is the failure of efficient allocation of resources Externality: the impact of one person’sb actions on the well being of another Market Power: The ability of a single entityc (or group) with substantial influence
  15. 15. “ ”How the Economy as a Whole Works
  16. 16. Three Principles of the Economy as a Whole A County’s Standard of Living1 Depends on Ability to Produce Goods and Servicesa Standard of living is linked to productivityb Keys: Education , Tools and Technologyc Government Budget deficits lower investment and productivity
  17. 17. Three Principles of the Economy as a Whole Prices Rise when Government2 Prints too Much Moneya Inflation: Increase in the overall level of prices Culprit: Growth in the quantityb of money supply (money value?) Keeping inflation low is part ofc good public policy
  18. 18. Three Principles of the Economy as a Whole Society Faces Short-run3 Trade off between Inflation and Unemployment Reduction in inflation causesa temporary increase in unemployment Restriction of money supply decreasesb spending leading to less sales Monetary Policy and Fiscal Policyc Are the instruments of control
  19. 19. “Remember the 10 Building Blocks------------------------------------------------Even the mostsophisticatedeconomic analysisis built usingthe ten principlesused here…