Lecture 01 - Introduction

Lecture 1

READING MATERIAL • Sloman – Ch.1 (ALL)

WHAT DO ECONOMISTS STUDY? The word economics is derived from the Greek “oikomamia” which means managing the house

“social science is concerned with the description and analysis of production, distribution and consumption of goods and services” Webster’s Dictionary utilise productive resources (land, labour, capital) • to produce goods and services • which are distributed to population

THE NATURE OF ECONOMIC REASONING • Economics as a science – models in economics – building models – using models – assessing models

• Economics as a social science – impossibility of conducting controlled experiments – problems of predicting human behaviour

SCARCITY

Unlimited Wants

SCARCITY

Unlimited Wants Limited Resources

Economic problem is how to allocate these limited resources to satisfy as many wants as possible

SCARCITY “We have 50 per cent of the world’s wealth but only 6.3 per cent of the world’s population. In this situation our real job in the coming period….. is to maintain this position of disparity. To do so we have to dispense with all sentimentality……….. we should cease thinking about human rights, the raising of living standards and democratisation.” - George Kennan, US Strategic planner, 1948.

WHAT DO ECONOMISTS STUDY?

Some fundamental (micro)economic questions

“market” interaction of D & S

• what to produce ? • how, when and where to produce?

production = Supply

• who is it produced for?

consumption = Demand

ECONOMIC SYSTEMS • Classifying economic systems • The command economy – features of a command economy  Communism

• The free-market economy What is a market?

ECONOMIC SYSTEMS What is a market?

What is a market? ECONOMIC SYSTEMS A market is a “process” that co-ordinates • buying (demand), and

co-ordination mechanism

• selling (supply) monetary ($) value = price does not have to be a physical location • e.g fruit market

• notice board (secondhand textbooks) • telephone or internet • classifieds / yellow pages

• barter • quotas / coupons • bribery / corruption

Some dimensions of markets ECONOMIC SYSTEMS Time

Minute / Hour / Day / Week ………….. Spot or Futures

Space

University / Birmingham / UK / EU / World

Product

Hot Chips / Fast Food / Food degree of substitutability

SOME TECHNIQUES OF ECONOMIC ANALYSIS • Use of diagrams in economics • Representing statistics – Time-series data – Cross-section data

• Getting a true picture from statistics – graphical presentation – absolute and proportional values – real and nominal values

• Functional relationships – simple linear functions – non-linear functions

DIFFERENTIATION • Elementary differentiation: the rules • Finding the maximum or minimum point of a curve – differentiating the equation – setting it equal to zero

• Is it a maximum or a minimum? – differentiating a second time – the second derivative test