Overview
This lecture introduces economics, defines its main concepts, and outlines its scientific approach, focusing on decision-making and the role of scarcity for individuals, organizations, and societies.
What is Economics?
- Economics is the scientific study of how individuals, organizations, and societies deal with the problem of scarcity.
- Scarcity is the central concept in economics and means that resources are limited compared to wants and needs.
- Economics examines decision-making under conditions of limited resources.
The Four Main Elements of Economics
- Economics is scientific and uses specific methods and assumptions.
- Economics focuses on individuals (people), organizations (businesses/governments), and societies (countries or cities).
- Economics analyzes how these groups make decisions to address scarcity.
- Understanding scarcity is crucial for learning economics.
Economics as a Science
- Economics uses scientific methods: making assumptions and drawing conclusions.
- Assumptions simplify reality to focus on key variables.
- Two basic assumptions in economics:
- Ceteris Paribus: holding other variables constant to isolate the effect of one variable.
- Rationality: people and organizations act in their best interest, choosing options that maximize their benefit.
Drawing Conclusions in Economics
- Conclusions in economics can be positive (what is) or normative (what should be).
- Positive economics deals with objective facts and is generally not debated.
- Normative economics involves value judgments and is often debated due to differing values.
Key Terms & Definitions
- Scarcity — The condition that resources are limited and insufficient to satisfy all wants and needs.
- Ceteris Paribus — The assumption that all other variables are held constant except the one being studied.
- Rationality — The principle that decision-makers choose options that benefit them the most.
- Positive Economics — The study of facts or "what is" in economics.
- Normative Economics — The study of what ought to be, based on value judgments.
Action Items / Next Steps
- Set up your notes into four quadrants: scientific method, individuals/organizations/societies, decision-making, and scarcity.
- Be prepared to learn and use the basic economic assumptions: ceteris paribus and rationality.
- Review today’s notes and definitions before the next class.