Economics S1

• Economics deals with every aspect of people's lives
• Economics


  Uses statistics, graphs, images, models, theories, principles, laws and reforms
• Economics


  Enables one to become a rational decision maker
• Economics


  Enables one to become a critical thinker
• Branches of Economics


  • Microeconomics
  • Macroeconomics
• Microeconomics


  Concerns the behaviour of small, individual economic units like individual households, business firms and industries
• Macroeconomics


  Concerns the total or aggregate economy, including topics such as national income, unemployment, and economic growth
• Normative Economics


  Statements of what ought to be, based on value judgements and personal opinions
• Positive Economics


  Statements of what is, based on facts and evidence
• Economic Variables


  Measurements that help determine how an economy functions, e.g. population, poverty, inflation, unemployment, GDP
• Generalisation


  Broad statement or idea that applies to a group of people or things
• Rational Choice


  Individuals make wise and logical decisions
• Scarcity


  Fundamental economic problem of having seemingly unlimited human wants in a world of limited resources
• Value Judgement


  An assessment of something as good or bad in terms of one's standards or priorities
• Microeconomics mainly deals with the aggregate behaviour of individual economic units
• Macroeconomics deals with issues like the unemployment rate and real GDP
• Macroeconomics is concerned with national demand for labour
• Normative statement


  • National government's total spending should be reduced
• Normative economics


  • Reducing inflation is a more important objective than economic growth
• Differences between Normative and Positive Economics

  • Normative economics makes statements of what ought to be, based on value judgements
  • Positive economics makes statements of what is, based on facts and evidence
• When economic choices are made, there is always an opportunity cost involved
• An increase in disposable income will shift the entire demand curve to the right
• Normative economics


  • Government should raise tax on goods that have harmful effects on society
• Microeconomics


  • Increase in price of Coke will lead to increase in demand for Pepsi
• Macroeconomics


  • An increase in money supply erodes the purchasing power of money
• Microeconomics


  • The labour force participation rate is influenced by the composition of the labour force
• Macroeconomics


  • The economic growth rate for the Fijian economy is quite promising
• Economists use scientific methodology to study the economic behaviour of mankind
• Inductive Methodology


  Begins with collection of facts which are systematically arranged, organised and analysed to derive economic principles, laws, theories and models
• Deductive Methodology


  Begins at the level of theory and proceeds to the verification or rejection of this theory by an appeal to the facts
• Inductive and Deductive Methodologies are used to gather information to assist in solving economic problems through the creation of economic policies
• Applied Economics/Economic Policy


  Combining facts and theories to formulate economic policies
• Economic Analysis/Economic Theory


  Organising facts into principles, laws, models and theories
• Descriptive Economics


  Identifying and collecting the relevant facts for an economic problem
• Fallacies


  Simple misleading arguments that must be avoided
• Main Fallacies in Economics

  • Fallacy of Composition
  • Post hoc fallacy
  • Wishful thinking
  • Generalisations
• Economic Law


  A general statement of what will happen given certain circumstances
• Economic Model


  A simplified picture of reality that gives a simplified representation of how two or more sectors of an economy function
• Assumptions


  Generalisations based on general rational behaviour and logical reasoning
• Economic Theory


  Deriving economic principles from relevant economic facts to establish cause and effect relationships