Introduction to Economics - PUMK 51

Key Concepts and Principles

• Economics: The science of analyzing how humans use scarce resources to fulfill unlimited wants.
  • Microeconomics: Focuses on individuals and businesses.
  • Macroeconomics: Examines the economy as a whole.
  • Economics is a social science that combines social analysis, mathematics, and statistics to enhance policy decisions.

Microeconomics vs Macroeconomics

• Microeconomics (First six months)
  • Study of individual markets, firms, and households.
  • Concerned with supply and demand in an open market.
• Macroeconomics (Latter half of the year)
  • Concerned with unemployment, economic growth, inflation, and overall economic conditions.

Normative vs Positive Statements

• Normative Statements: Subjective and opinion-based.
  • Example: "Unemployment is the biggest problem."
• Positive Statements: Objective and based on scientific facts.
  • Example: "Unemployment rate is 38%."

Core Economic Concepts

• Scarcity: Unlimited wants vs limited resources.
• Choice: Allocating scarce resources for maximum satisfaction.
• Opportunity Costs: The cost of making one choice over another.

Production Possibilities Curve (PPC)

• Depicts the maximum possible output of two goods.
• Efficient Production: Points on the curve.
• Inefficient Production: Points within the curve, indicating underproduction and potential unemployment.
• Unattainable Production: Points outside the curve, due to scarcity.
• Technological Shifts:
  • Outward Shift: Economic growth or technological improvement.
  • Inward Shift: Loss of efficiency (e.g., due to a drought, or electricity shortages).

Correlation vs Causation

• Correlation: Two variables move together but aren’t necessarily directly related.
• Causation: One variable directly affects another.
• Example: Ice cream sales and crime both rising does not imply causation.

Measuring Economic Variables

• Level: The status of an economic variable at a specific time.
• Rate of Change: How quickly a variable is increasing or decreasing.
  • Indicates economic trends like growth or recession.

Critical Thinking in Economics

• Analyze data objectively, consider multiple perspectives, and recognize biases.
• Aim to solve real-world problems using critical thinking skills.