1 Introduction of Economics

PRINCIPLES OF

MACROECONOMICS

N. G R E G O R Y M A N K I W

PowerPoint® Slides
by Ron Cronovich

© 2007 Thomson South-Western, all rights reserved

In this chapter, we will be able to know-
Topics covered
1.1 Introduction of Economics
1.2 Definition of Economics
1.3 Branches of Economics
1.4 Differences - Microeconomics and Macroeconomics

1.5 Central Problems of an Economy

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 Introduction of Economics
 Economics is about economizing; that is, about
choice among alternative uses of scarce
resources.
 Choices are made by millions of individuals,
businesses, and government units.
 Economics examines how these choices add up
to an economic system, and how this system
operates.

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 Introduction of Economics

 Scarcity is central to economic theory.

 Economic analysis is fundamentally about the
maximization of something (leisure time, wealth,
health, happiness—all commonly reduced to the
concept of utility) subject to constraints.
 These constraints—or scarcity—inevitably define
a tradeoff.

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 Introduction of Economics

 For example, one can have more money by

working harder, but less time (there are only so
many hours in a day, so time is scarce).
 One can have more apples only at the expense
of, say, fewer grapes (you only have so much
land on which to grow food—land is scarce).

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 Introduction of Economics

 The word ‘Economics’ was derived from the

Greek words ‘Oikos’ (a household) and ‘Nemein’
(to manage), which meant managing a
household, using the limited money or resources
a household has.

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 DEFINITIONS OF ECONOMICS
Wealth Definition – Adam Smith
Adam Smith, who is also regarded as father of
economics, stated that economics is a science concerned
with the nature and causes of wealth of nations.
That is, economics deal with the question as to how to
acquire more and more wealth by a nation.

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 DEFINITIONS OF ECONOMICS
Welfare Definition - Marshall
Economics not only analysis the aspect of how to acquire
wealth but also how to utilize this wealth for obtaining
material gains of human life.
Wealth is a means to achieve certain ends.
Economics is not a science of wealth but a science of man
primarily. It may be called as the science which studies
human welfare.

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DEFINITIONS OF ECONOMICS

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 DEFINITIONS OF ECONOMICS
 Lionel Robbins challenged the traditional view of the
nature of economic science.

 He called all the earlier definitions as classificatory and

unscientific.

 According to him, “Economics is the science which

studies human behaviour as a relationship between ends
and scarce means which have alternative uses.”

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 BRANCHES OF ECONOMICS

BRANCHES OF ECONOMICS

 The subject matter of economics is divided into

two categories
• Microeconomics
and
• Macroeconomics.

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 BRANCHES OF ECONOMICS

1. Micro Economics
 In Greek mickros means small.
 Microeconomics deals with a small part of the whole economy.
 It is the study of the economic behaviour of individual consumers,
firms, and industries and the distribution of production and income
among them.
 It considers individuals both as suppliers of labour and capital and as
the ultimate consumers of the final product.
 On the other hand, it analyses firms both as suppliers of products and
as consumers of labour and capital.

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 BRANCHES OF ECONOMICS

2. Macro Economics
 In Greek mackros means large.
 Macroeconomics deals with
• the aggregates of the system.
• with the behaviour of various economic variables that refer to the
economy as a whole.
 These variables are—total national income, aggregate employment,
the extent to which the economy’s resources are being fully employed,
aggregate saving and investment, and the general price level in the
economy.
 Thus, under macroeconomics we study economy as a whole.

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 DISTINCTION BETWEEN MICROECONOMICS AND
MACROECONOMICS

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 CENTRAL PROBLEMS OF AN
ECONOMY/SOCIETY
 The
economic
problems of
an economy
are
unlimited
wants and
limited
resources.

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CENTRAL PROBLEMS OF AN ECONOMY/SOCIETY

 1. What goods and services are to be produced?

• Consumer goods or Capital/producer goods

 2. How to produce these goods and services?

• Labour Intensive Method and Capital-Intensive Method

 3. For whom these goods and services are to be

produced?
• Paying Capacity – Rich or Poor

 4. Are the resources efficiently used?

 5. Are the resources fully employed?
 6. How to attain growth in the economy?

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 CHAPTER 1 Introduction of Economics
REVIEW QUESTIONS

 Define economics.
 Explain various definitions of economics.
 What are the economic problems that every
economy has to face? Discuss in detail.
 Distinguishbetween microeconomics and
macroeconomics.

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 REFERENCES
 https://ebookcentral.proquest.com/lib/shctom/
detail.action?
docID=346118&query=macro+economics
 https://ebookcentral.proquest.com/lib/shctom/
detail.action?
docID=1144063&query=macro+economics

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