MODULE 1

NATURE AND METHOD OF ECONOMICS

- People’s economic wants are numerous and varied. Biologically, humans need
only air, water, food, clothing and shelter. But in contemporary society we also
seek the many goods and services that provide a comfortable or affluent
standard of living.
- society is blessed with productive resources-labor and managerial talent, tools
and machinery, land and mineral deposits-that are used to produce goods and
services. This production satisfies many of our economic wants and occurs
through the organizational mechanism called the economic system or, more
simply the economy.

ECONOMICS

- is the study of scarcity and its implications for the use of resources, production of
goods and services, growth of production and welfare over time, and a great
variety of other complex issues of vital concern to society.
- The study of economics helps people understand the world around them. It
enables people to understand people, businesses, markets and governments,
and therefore better respond to the threats and opportunities that emerge when
things change.

Ø Economics for Citizenship

- A basic understanding of economics is essential for well-informed citizenship.

Most of today’s political problems have important economic aspects

Ø Professional and Personal Applications

- Economics lays great stress on precise, systematic analysis. Thus, studying

economics invariably helps students improve their analytical skills, which are in
great demand in the workplace.
- Economics is also vital in business.
- An understanding of the basics of economic decision making and the operation
of the economic system enables business managers and executives to increase
profit.
- an understanding of economics makes for better financial decisions
 - Economics ultimately examines problems and decisions from the social, rather
than the personal, point of view

Economic development

- It is also defined as an increase in a country’s wealth and standard of living.

- study of how economies are transformed from stagnation to growth and from
low-income to high-income status, and overcome problems of absolute poverty.
● an improvement in the welfare of people in a nation
● In reality, development is far more multidimensional.
● development is about:
- increasing people’s freedom
- reducing poverty
- public provision of education, health care and law and order
- guarantee of civil liberties and opportunities for civic participation.

The Nature of Development Economics

Traditional economics

- concerned primarily with the efficient, least-cost allocation of scarce productive

resources and with the optimal growth of these resources over time so as to
produce an ever-expanding range of goods and services.

Political economy

- is therefore concerned with the relationship between politics and economics,

with a special emphasis on the role of power in economic decision making.

Traditional Economic Measures

- Levels and rates of growth of “real” per capita gross national income (GNI)
(monetary growth of GNI per capita minus the rate of inflation) are then used to
measure the overall economic well-being of a population—how much of real
goods and services is available to the average citizen for consumption and
investment.
- Development strategies have therefore usually focused on rapid industrialization,
often at the expense of agriculture and rural development.
 - development policy circles in the 1970s, development was until recently nearly
which rapid gains in overall and per capita GNI growth would either “trickle down”
to the masses in the form of jobs and other economic opportunities or create the
necessary conditions for the wider distribution of the economic and social
benefits of growth.
- Problems of poverty, discrimination, unemployment, and income distribution were
of secondary importance to “getting the growth job done.” Indeed, the emphasis
is often on increased output, measured by gross domestic product (GDP)

Gross domestic product (GDP)

- The total final output of goods and services produced by the country’s economy, within
the country’s territory, by residents and nonresidents, regardless of its allocation
between domestic and foreign claims.

Income per capita

- Total gross national income of a country divided by its total population

Gross national income

- (GNI) The total domestic and foreign output claimed by residents of a country. It
comprises gross domestic product (GDP) plus factor incomes accruing to residents from
abroad, less the income earned in the domestic economy accruing to persons abroad

The New Economic View of Development

- World War II and postcolonial development in the 1950s, 1960s, and early 1970s,
when many developing nations did reach their economic growth targets but the
levels of living of the masses of people remained for the most part unchanged,
signaled that something was very wrong with this narrow definition of
development.
- Development must be conceived of as a multidimensional process involving
major changes in social structures, popular attitudes, and national institutions, as
well as the acceleration of economic growth, the reduction of inequality, and the
eradication of poverty.
Three Core Values of Development

1. Sustenance
- The Ability to Meet Basic Needs All people have certain basic needs without
which life would be impossible.
- When any of these is absent or in critically short supply, a condition of
“absolute underdevelopment” exists

2. Self-Esteem
- To Be a Person A second universal component of the good life is
self-esteem—a sense of worth and self-respect, of not being used as a tool by
others for their own ends.

3. Freedom from Servitude

- To Be Able to Choose A third and final universal value that we suggest should
constitute the meaning of development is the concept of human freedom.
- The concept of human freedom also encompasses various components of
political freedom, including personal security, the rule of law, freedom of
expression, political participation, and equality of opportunity.

The Three Objectives of Development

1. To increase the availability and widen the distribution of basic life-sustaining goods
such as food, shelter, health, and protection.

2. To raise levels of living, including, in addition to higher incomes, the provision of more
jobs, better education, and greater attention to cultural and human values, all of which
will serve not only to enhance material wellbeing but also to generate greater individual
and national self-esteem

3. To expand the range of economic and social choices available to individuals and
nations by freeing them from servitude and dependence, not only in relation to other
people and nation-states, but also to the forces of ignorance and human misery.
Economics Goals

● Economic growth
– produce more and better goods and services, or more simply, develop a higher
standard of living.

● Full employment
– provides suitable jobs for all citizens who are willing and able to work.

● Economic efficiency
– achieve the maximum fulfillment of wants using the available productive
resources

● Price-level stability
– Avoid large upswings and downswings in the general price level; that is to
avoid inflation and deflation.

● Economic freedom
– Guarantee that business, workers and consumers have a high degree of
freedom in their economic activities.

● Equitable distribution of income

– Ensure that no group of citizens faces poverty while most others enjoy
abundance.

● Economic security
– Provide for those who are chronically ill, disabled, laid off, aged, or otherwise
unable to earn minimal levels of income.

● Balance of trade
– Seek a reasonable overall balance with the rest of the world in international
trade and financial transactions.

Two branches of Economics these are Microeconomics and Macroeconomics

- Microeconomics
 - Macroeconomics

Economics is Personal (Microeconomics)

- studies the implications of individual human action, and is key to a person's

financial health.
- deals with the behavior of individual households and firms and how that behavior
is influenced by government basically it is the study of decisions made by people
and businesses.
- focuses on supply and demand and other forces that determine price levels in
the economy.
- It takes a bottom-up approach to analyzing the economy.
- tries to understand human choices, decisions, and the allocation of resources.

Microeconomics involves several key principles, including (but not limited to):

● Demand, Supply and Equilibrium

- Prices are determined by the law of supply and demand. In a perfectly
competitive market, suppliers offer the same price demanded by consumers. This
creates economic equilibrium.

● Production Theory
- This principle is the study of how goods and services are created or
manufactured.

● Costs of Production
- According to this theory, the price of goods or services is determined by the
cost of the resources used during production.

● Labor Economics
- This principle looks at workers and employers, and tries to understand patterns
of wages, employment, and income.

Economics is Universal (Macroeconomics)

- studies how the economy behaves as a whole, including inflation, price levels,
rate of growth, national income, gross domestic product and changes in
employment rates.
 - From politicians to educators to journalists to urban planners, a thorough
understanding of macroeconomics has a strong impact on leadership skills,
decision-making and the ability to plan for a flourishing social future.
- The Department of Economics has designed a multidisciplinary curriculum that
prepares students to maneuver seamlessly from one area of focus to another.
- concerned with economy-wide factors such as inflation, unemployment, and
overall economic growth
- looks at the decisions of countries and governments.
- analyzes how an increase or decrease in net exports impacts a nation’s capital
account, or how gross domestic product (GDP) is impacted by the unemployment
rate.
- focuses on aggregates and econometric correlations, which is why governments
and their agencies rely on macroeconomics to formulate economic and fiscal
policy.

Economics is for You

- If you want to understand wealth, poverty, growth, trade, money, jobs, income,
depression, recession, prices and monopolies, and study what makes the world
work from day to day, you will be fascinated by the complex field of economics.