Overview
This lecture introduces economics, its foundational principles, main branches, and the significance of studying it in an increasingly globalized world.
Definition and Core Principles
- Economics is the branch of knowledge focused on production, consumption, and transfer of wealth.
- Economics studies how people, businesses, and societies allocate scarce (limited) resources.
- The principle of scarcity means resources are limited and cannot be created or destroyed.
- The principle of choice states individuals decide how to use their limited resources.
- The principle of trade-offs means every choice involves an opportunity cost, or the value of the next best alternative.
History and Development
- Economics became a distinct discipline in 1776 with Adam Smith's "Inquiry into the Nature and Causes of the Wealth of Nations."
Branches of Economics
- Microeconomics studies the behavior and interactions of individual market participants.
- Macroeconomics examines the economy as a whole, such as national or regional economies, not just individual markets.
Applications and Significance
- Economic analysis helps determine if policies are effective in achieving goals like increasing national income or reducing poverty.
- The importance of economics has increased as globalization connects economies worldwide.
- Understanding economics helps individuals and businesses make strategic and efficient decisions.
- Economics prepares students for careers in banking, finance, insurance, accounting, and investment.
Key Terms & Definitions
- Scarcity — the condition where resources are limited and insufficient to satisfy all wants.
- Opportunity Cost — the loss of potential gain from other alternatives when one option is chosen.
- Microeconomics — the study of individual markets and participants within an economy.
- Macroeconomics — the study of the economy as a whole, focusing on aggregate variables.
Action Items / Next Steps
- Review and define the three principles of economics (scarcity, choice, trade-offs).
- Read about Adam Smith and the history of economics as a discipline.
- Explore examples of microeconomics and macroeconomics in real-world contexts.