Economics

• The definition of economics

  The study of how individual, households and institutions make choices, to optimize their satisfaction under conditions of scarcity
• Features of the economic perspective

  • Scarcity and choice
  • Opportunity cost
  • Rational behaviour
• Role of economic theory, principles and models

  • They simplify the complex economic reality to help understand how individuals, businesses and governments operate
  • They are used to ascertain cause and effect (or action and outcome) within the economic system
  • Good theories do a good job of explaining and predicting economic behaviour
• Distinction between microeconomics and macroeconomics

  • Microeconomics examines the behaviour of individual economic units (consumers, workers, firms)
  • Macroeconomics examines the economy as a whole or its basic subdivisions or aggregates (government, household, business sectors)
• Positive and normative economics

  • Positive economics describes what is, without making judgements
  • Normative economics makes value judgements about what ought to be
• Adam Smith: 'It is the interest of every se to low as each at Al the ae, whether be does, ar do sat performs a either to neglect & algeher oro p... fald, will advise the great V7 as he car and Alts are to be precisely very laborieur daty, it is certainly kis interest how to spend page as efficiently'
• That brings us to a deities of eccsaries
• Economies is the study of how indisidaal, harnesses and issistisse male choices, a optixias deir of astigfection under conditions of scarcity
• The economic perspective


  • Scarcity and choice
  • Opportunity cost
  • Rational behaviour
• The so-called 'free lunch is never free. The consumer making a choice bear a cost-and, ultimately, so does so
• Rational behaviour


  Individuals look for and perse opportation to increase their levels of section when obtaining or consuring an article
• Utility


  The pleasure, happiness or satisfaction obtained frees consuming a good or service
• Rational consumer


  Someone who maximizes utility subject to a budget constraint
• A rational consumer will consequently think the matter over carefully before choosing the goods and servis which to spend their income. The products and the quantities bought must provide the consumer with the highest possible total utility.
• A rational producer seeks to maximise the profit of the firm they happen to run.
• Marginal analysis


  Comparisons of marginal benefits and marginal costs, usually for decision making
• Economic principles are expressed as the tradeacks of typical or average consans workers.or bastress fas
• Other-things-equal caption


  The assumption is that factors other than those belag considered do not change
• Graphical crpresslos


  Many economic models are expensed graphically
• Macroeconomics


  Examines the economy as a whole or its basic subdivisions or aggregates (government, household, business sectors)
• Microeconomics


  Examines the behaviour of individual economic units (consumers, workers, firms)
• on the price-quantity relationship of Pepel purchases without being confused by change in other variables
• Graphical crpresslos. Many economic models are expensed graphically. Be sure to read the special appendix at the end of this chapter as a review of graphs
• Macroeconomics


  Examines either the economy as a whole or its basic subdivisions or aggregates, such as the government, household and business sectors
• Microeconomics


  The part of economics concerned with individual economic units, such as a person, a household or a firm
• Positive economics deals with factual statements (what is), normative economics involves value judgements (what ought to be)
• Positive economics describes and tries to explain behaviour and deals with what the economy is actually like
• Normative economics incorporates value judgements about what the economy should be like or what particular policy actions be recommended to achieve a desirable outcome
• Positive statements


  • The unemployment rate in South Africa is higher than that in Botswana
• Normative statements


  • South Africa ought to undertake policies to make the labour market more flexible to reduce unemployment rates
• Most economic controversy then reflects differing opinions or value judgements about what society should be like
• Economics examines how individuals, institutions and society make choices under conditions of scarcity
• Economic perspective


  • Resource scarcity and the necessity of making choices
  • Assumption of rational behaviour
  • Comparisons of marginal benefit and marginal cost
• Economists use the scientific method to establish economic theories-cause-effect generalations about the economic behaviour of individuals and institutions
• Levels of economics


  • Macroeconomics
  • Microeconomics
• Market System/Crites


  • Private property
  • Freedom of enterprise
  • Deprest
  • Competition
  • Matt and prices
  • Technology and ce
  • Specialization
  • Division of labce
  • Govenment Int
• The fundamental questions


  • What Will Be Produced?
  • How Will the Goods and Services Be Produced?
  • Who Will Receive the Goods and Services?
  • How Will the Factors of Production Be Rewarded?
  • Who Will Make the Economic Decisions?
• The market system


  • Characterized by a misture of centralbord governement economic intades and decentralized actions taken by individuals and flies
  • The peecise mixture varies by country, but, in each case, the system features the private ownership of resources and the use of markets and prices to coordinate and direct economic activi
• In the market system

  Individuals and businesses seek to achieve their economic goals through their own decisions regarding work, consumption or production
• The market system


  • Allows for the private ownership of capital
  • Communicates through prices
  • Coordinates economic activity through markets-places where buyers and sellers come together to buy and sell goods, services and resources