Introduction to Economics

Definition of Economics

• Economics is a social science focused on the study of how people allocate their limited resources to satisfy unlimited wants.
• Resources include financial resources, time, talent, and energy.
• Emphasis on the need to make choices due to limited resources.

Key Concepts

• Unlimited Wants: Everyone has numerous wants, but limited resources to fulfill them.
• Choices and Prioritization: Allocating resources to one want reduces the ability to satisfy others.
• Study Focus: Economics examines choices made by individuals, households, and governments regarding resource allocation.

Theories and Models in Economics

• Use of theories and models to simplify and represent how the world works.
• Application of these models to draw conclusions about economic behaviors.

Categories of Economics

Macroeconomics

• Definition: Study of the economy as a whole, focusing on aggregate behaviors and outcomes.
• Key Aggregates:
  • Inflation Rate
  • National Unemployment
  • Gross Domestic Product (GDP): Total dollar value of goods and services produced annually.

Microeconomics

• Definition: Study of individual parts of the economy, focusing on specific decisions made by individuals, households, and businesses.
• Examples:
  • Student time allocation for studying.
  • Family decisions on purchasing vehicles.

Differences Between Macroeconomics and Microeconomics

• Perspective: Macroeconomics looks at the big picture while microeconomics focuses on smaller components.
• Interrelation:
  • Individual spending patterns (micro) contribute to national economic conditions (macro).
  • High unemployment (macro) affects individual spending habits (micro).

Behavioral Economics

• Focus on actual behavior rather than thoughts or intentions.
• Recognizes inconsistency between what people say and what they do.

Conclusion

• Macroeconomics and microeconomics are interconnected despite being studied separately.
• Understanding their relationship is crucial for grasping overall economic conditions and individual behaviors.