Economic and Economic Reasoning : Branches of economics

1. What is Economics?

• • It’s a social science that studies how society allocates scarce resources among unlimited needs.

2. The Two Main Branches of Economics:

• • Microeconomics: The study of individual choices and how they are influenced by economic forces.
    
    • • Examples: Consumers and Producers (buyers and sellers), Markets and Equilibrium, Elasticity.

• • Macroeconomics: The study of economics as a whole.
    
    • • Examples: Inflation, Unemployment, Economic Growth.

3. What is the Economic Problem?

• • Too many mouths, not much food to go around.

• • Needs: Things that humans can’t live without (∞), like food, water, shelter.

• • Wants: Things that humans can live without but desire (∞).

• • Resources are always limited and can’t meet all human needs and wants (scarce).
    
    • • Scarcity means resources are too few to satisfy individual desires.

4. Economic Resources (Factors of Production):

1. 1. Land is paid rent : Includes natural resources like minerals, forests, and water

1. 1. Labor is paid salary or wages : Refers to the human effort used in production, both physical and intellectual.

1. 1. Capital is paid interest : Includes machinery, tools, and buildings used to produce goods and services.

1. 1. Entrepreneurship is paid profits : The creativity and risk-taking involved in organizing and managing a business.

5. The Main 3 Economic Questions:

1. 1. What and how to produce?
      
      • • What goods and services should an economy produce? Is it agriculture, manufacturing, services?

1. 1. For whom to produce?
      
      • • Who should get the goods and services? The rich people or those who work hard?

1. 1. How to produce?
      
      • • How should goods and services be produced? This depends on the type of economy (market economy, command economy, mixed economy) and the available resources. For example, should production be labor-intensive (relying on workers) or capital-intensive (using machines and technology)?”

6. Positive vs Normative Economics:

• • Positive Economics: Only deals with facts.

• • EX : “The unemployment rate is 6% this year.” This is based on factual data.

• • Normative Economics: Involves opinions and what should be (not facts).

• • EX : “The government should lower taxes to reduce unemployment.” This is based on opinion or value judgment.

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