Overview
This lecture introduces the concept of economics, its origins, core objectives, and the main branches: microeconomics and macroeconomics.
Defining Economics
- Economics studies scarcity and its effects on resource use and the production of goods and services.
- It assumes humans act rationally to maximize their benefit or utility.
- The ultimate aim of economics is to improve the living conditions of individuals and societies.
Historical Origins of Economics
- Early economic thought dates back to Greek poet Hesiod, who addressed the allocation of labor, resources, and time.
- Economics was once considered a branch of philosophy until Adam Smith's 1776 book "The Wealth of Nations."
- Adam Smith’s work marked the beginning of economics as a distinct science.
The Problem of Scarcity
- Economics addresses satisfying unlimited human needs with limited (scarce) resources.
- Scarce resources like diamonds mean not all needs can be fulfilled.
- Efficiency (optimal use of resources) and productivity (output from resources) are crucial economic concepts.
Branches of Economics
- Macroeconomics studies the economy as a whole, including economic cycles, growth, foreign trade, government policies, unemployment, inflation, interest rates, and GDP.
- Microeconomics focuses on individual and small group decisions, such as household spending and business operations.
- Microeconomic and macroeconomic phenomena are interconnected; micro-level actions aggregate to macro-level results.
- Each branch uses different theories, models, and research methods, which can sometimes appear contradictory.
Key Terms & Definitions
- Scarcity — the limited nature of resources compared to unlimited human wants.
- Utility — the level of satisfaction or benefit obtained from consuming goods or services.
- Efficiency — optimal allocation and use of resources.
- Productivity — the amount of output produced from a given amount of input.
- Macroeconomics — the study of the economy at a large (national or global) scale.
- Microeconomics — the study of individual or small group economic decision-making.
Action Items / Next Steps
- Watch the recommended videos on macroeconomics and microeconomics for further detail.