2. Definition
- The word Economy comes from a greek word that
means “one who manages a household”
- In a broad sense, Economy is the systematic study of
human action (objectives, value, means, utility, time)
- In a narrow sense, Economy is the social science that
studies how to allocate scarce resources in order to
fulfill infinite human necessities
3. Method
- Economics is not an empirical science (as
physics, chemistry ...). Then, It would be a
mistake to use the same method (inductive)
- The method of Economics is logic-deductive
- The axiom (self-evident proposition that
doesn't require a demonstration) is that man
tries to achieve certain goals in his life using
adequate means
4. Microeconomics focuses on the individual
parts of the economy (how families and
firms make decisions and how they interact
in the markets).
Macroeconomics looks at the economy as a
whole (economic growth, unemployment,
inflation ...).
5. Some economic principles
- To get one good, you usually have to give up
another good (leisure versus work, university
versus Cicles Formatius de Grau Superior ...)
- Making decisions implies trading off one goal
against another
- The Opportunity Cost of a good is what you
give up to obtain it (the cost of an action is
what you foregone with this action).
6. Some economic principles
- People make decisions by comparing benefits
and costs at the margin. Marginal changes are
small adjustments to an existing plan of
action.
- The decision to choose A and not B occurs
when A's marginal benefits exceed its
marginal costs.
7. Some economic principles
- Trade results in a better position for both,
seller and buyer.
- Trade allows people to specialize in what do
best.
- People change their behaviour in response to
the incentives they face.
8. Some economic principles
- A market economy is usually a good way to
organize economic activity. It allocates
resources through the decentralized decisions
of many families and firms. Families decide
what to buy and who to work for. Firms
decide what to produce and who to hire.
- Adam Smith claimed that the interaction of
families and firms in the market is guided by
an “invisible hand”. Price decision making
tends to maximize the welfare of society.
9. Some economic principles
- When markets fail (don't allocate resources
efficiently) governments can intervene to
promote efficiency and equity.
- The growth in the quantity of money creates
an increase in the overall level of prices.
- When the government creates large quantities
of money, it causes inflation and the value of
money falls.
10. Some economic principles
- When markets fail (don't allocate resources
efficiently) governments can intervene to
promote efficiency and equity.
- The growth in the quantity of money creates
an increase in the overall level of prices.
- When the government creates large quantities
of money, it causes inflation and the value of
money falls.
