Eco 2 Summary.docx

First what is Economics? Economic is the study of how human being coordinate their wants and desire given decision making, social customs and political realities of that society Definition

Adam Smith Study of nature and causes of nations wealth

Marshal The study of men how they live, move and think in ordinary business life

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According to definition

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Criticism

1- To narrow didn’t consider the major problem faced by society 2- Ignored nonmaterial aspects of human life 3- Central focus of economics should be scarcity and choices

Economic is a social science Economic study ordinary business of life Economic study only material welfare

1- Doesn’t include nonmaterial welfare 2- Production of war material are economic activity but doesn’t promote the welfare of society 3- Welfare is not measurable

Robbins Economics study human behavior as a relation between ends and scarce means

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Human wants are unlimited Resources are scarce Society have to make choices of what to satisfy first

1- Focusing much on individual choices 2- The root of all economic problem is the scarcity of resources without having any human touch

Samuelson Economic study how people and society choose with or without the use of money to employ scarce resources to produce commodities over time and distributing them for consumption  Growth orientation  Dynamic allocation of resources  Distribution of resources  Improvement in allocation of resources

Colander Economics study how humans coordinate their wants and desire through decision making , social customs and political realities of society

Michael Parkin Economics study the choices that individual business and government make to cope with the scarcity of resources and the incentives that influence these chocies

Difference between microeconomics and macroeconomics Microeconomics Is a branch of economics that deals with the decision making of individuals Example : Individual income Individual consumption Individual saving Individual expenditure Individual investment It take into account small components of the economy Known as price theory It concerns with the optimization of goals of individual It study the flow of economic resources from individual to another individual Help in making appropriate policies for resource allocation

Macroeconomics Is a branch of economics that deals aggregates and average of entire economy Example: National savings Aggregate investment National output General price level Inflation and deflation It take into account the whole economy Known as income theory It concerns with the optimization of goals of entire economy It study the circular flow of income and expenditure between different sectors in the economy Help in making appropriate policies for controlling price level

Three economic Questions 1- What and how much to produce 2- How to produce it (Factors of production) a- Land : the natural resources above and under the surface of the land b- Labor : the human capital available to transform resources into goods c- Capital : represent the monetary resources (money ) and physical assets (machines) used to produce goods and services d- Entrepreneur : the person who supply product to the market to make profit 3- For whom to produce a- Land earn rent b- Labor earn wages c- Capital earn interest d- Entrepreneur earn profit Scarcity: the condition of limited and unlimited wants and needs Limited resources ---- Scarcity of goods and services --- Unlimited wants and needs -- must make choices a- Absolute Scarcity : there is insufficient quantities of resources to meet human wants and needs b- Relative Scarcity : there may be physical resources but there is a problem about supply and distribution How society deal with Scarcity: 1- Economic growth to increase economic resources 2- Reduce our wants 3- Improve the use of existing resources

Economic way of thinking 123456-

Choice is a trade off Rational choices Benefit Cost Most choices are how much Choices responds to incentives

Opportunity Cost: is the benefit forgone for the next best alternative to the activity you have chosen

Production Possibility model: Is a curve that show the tradeoff among choices we have

Shift in the PPC 1- Improvement of technology 2- Discovering resources 3- Improving economic institution

Income accounting: set of rules and definitions for measuring economic activity Gross Domestic Product: the total value of all final goods and services produced in a given county at a given period Gross national Product: the aggregate final output of citizens and business in an economy in one year Gross: before deducting depreciation of capital Depreciation: decrease in the value of the firm capital due to wear and tear Gross investment: total amount spent on purchases of capital Net investment: the increase in the value of the firm capital Net investment = Gross investment – Depreciation

Three ways of measuring GDP Expenditure approach  Consumption  Government spending  Investment  Change in value of stocks  Export – import

GDP = C + I + G + (x-M)

Income Approach  Income from people in jobs  Profit of private sectors

Value added approach  Value added from each of the main sectors Primary - Secondary - Manufacturing - Quaternary