Introduction to Economics

Definition of Economics

• Economics: The scientific study of how individuals, organizations, and societies deal with the problem of scarcity.
• Instructor's simplified definition: The study of scarcity.

Key Elements of the Definition

1. Economics is Scientific
2. Focus on Individuals, Organizations, and Societies
3. Decision Making
4. Dealing with Scarcity

Economics as a Science

• Economics is a science with dedicated research and journals.
• Assumptions in Economics:
  • Ceteris Paribus: Isolating one variable while keeping others constant.
  • Rationality: Assuming individuals make rational decisions to maximize their benefits.
• Conclusions in Economics:
  • Positive Economics: Describes what is; generally no argument over facts.
  • Normative Economics: Describes what should be; involves value judgments and can lead to disagreements.

Focus on Decision Making

• Decision making involves choosing how to allocate scarce resources.
• Example: Dealing with a flat tire requires decision making.

Dealing with Scarcity

• Scarcity: Limited resources versus unlimited wants.
• A central problem in economics that individuals, organizations, and societies have to address.

Practical Example

• Ceteris Paribus: Example of price reduction leading to increased demand, assuming other factors are constant.
• Rationality: People will choose $30 over $20 if all else is equal, demonstrating rational decision making.

Positive vs. Normative Economics

• Positive Economics: Objective and fact-based; no arguments (e.g., 17% of people lack healthcare).
• Normative Economics: Subjective and opinion-based; involves value judgments and can lead to debates (e.g., how to address the lack of healthcare).

Summary

• Key to understanding economics involves recognizing it as a science, focusing on decision making, and addressing scarcity.
• Importance of learning foundational principles in a principles of economics class, which may differ from higher-level economic studies.