Business

Economics
Instructor: Maria
Silat Lecture 1
 Why study
Learning Economics?
Scope of Economics
Objectives Method of Economics
•Study of Economics should start with curiosity and a
sense of wonder.

•Pause and Reflect. It is all around you! Much much

beyond these slides and textbook.

.
•Economics is the study of how individuals and
societies choose to use the scarce resources that
nature and previous generations have provided.
• Economics is a behavioral, or social, science.

• Economics is the study of how people make

choices.
Economics is
Everywhere!
We study Economics:
1. To learn a Way of
Thinking/Way to
make decisions.

Three Fundamental
Concepts:
1.Opportunity Cost and
Scarcity
2.Marginalism
3.Efficient Markets
Opportunity Cost
and Scarcity
OC is the best alternative we forgo when we make
a decision.

The economic cost of making a specific choice

includes (the value of) what we give up by not
making the best alternative choice.

OC arises because human wants are unlimited

and resources are scarce (limited)
Examples
Cost of going for a movie

Cost of a sales

conference Cost of

college education
Cloth of gold:
Why the economic value of a face mask is
$56.14?
Example:
A company has TR/yr $10
mn. Accountng cost is
$9mn.
The owner is a Stanford graduate who was
offered $600,000 to work in a tech
company in LA.
What is the economic cost and
economic profit of the company?
Marginalism
Marginalism is the process of analyzing the
additional or incremental costs or benefits
arising from a choice or decision.

Additional/Incremental
Marginalism
You are the night manager at the EZ-Sleep
hotel. You are approached at 10 pm by a
traveler looking for a room. The traveler says,
"I can only spend $50." The standard rate for
your
cheapest room is $150. You know the hotel
currently has half a dozen empty rooms. Should
you rent the room for $50?
 Efficienc
y A market in which
most profit
opportunities are
instantan
eously
eliminate
d.

Importan
2. Economics helps you
understand society and become
an informed citizen

What are the biggest

issues in today's
world?
 Microeconomics: The branch of economics that
examines the functioning of individual industries and
Scope of the behavior of individual decision-making units—
that is, firms and households.

Economics Macroeconomics: The branch of economics that examines

the economic behavior of aggregates—income,
employment,
output, and so on—on a national scale.
Some examples of real economic
research
Bringing Education to Afghan Girls: A Randomized Controlled Trial of Village-Based
Schools. (Burde & L.inden, 2013)

Can performance pay for teachers improve students’ test scores? (Muralidharan, 2011)

Can introduction of an IT service center in an area promote school enrollment? (Oster,

2013)

There is a journal of Sport Economics and even a journal of Wine

Economics!
Types of Statements in
Economics
1.Positive economics is an approach to economics that seeks to understand behavior and
the operation of systems without making judgments. It describes what exists and how it
works.

2.Normative economics is an approach to economics that analyzes outcomes of economic

behavior, evaluates them as good or bad, and may prescribe courses of action. Also called
policy economics. When economists disagree, the points they argue about are often normative
points (differences of opinion and values).

Example: Pick a policy issue and dissect positive and normative statements.
 Scientific Method of
Economics
A model: a formal statement of a theory, usually a mathematical statement of a presumed relationship between
two or more variables.

A variable: a measure that can change from time to time or from observation to observation.

All Else Equal: Ceteris Paribus is a device used to analyze the relationship between two variables while the values
of other variables are held unchanged.

Expressing Models in Words, Graphs, Equations: Economists use graphs and mathematics to make it
more difficult to overlook some effects.

Example: What affects the demand of a product example fuel? Can you construct a model to explain fuel
consumption?
What is
Causality?
The post hoc fallacy is the incorrect belief that because event B occurs
after event A then A caused B.

Correlation refers to things happening together. Just because two

variables move closely together doesn’t mean one causes the other.

The fallacy of composition is the erroneous belief that what is true for a
part is necessarily true for the whole.
Can there be "experiments" in
Economics?
ECONOMIC
POLICY
•efficiency: In economics, allocative efficiency. An efficient economy is one
that produces what people want at the least possible cost.

•equity: Fairness

•economic growth An increase in the total output of an economy.

•stability A condition in which national output is growing steadily, with

low inflation and full employment of resources.