Introduction to Economics
What is Economics?
● Definition: Economics is the study of how individuals and societies allocate limited
resources to satisfy unlimited wants.
● Branches of Economics:
○ Microeconomics: Focuses on the behavior of individual consumers and firms.
○ Macroeconomics: Deals with the economy as a whole, including inflation,
unemployment, and economic growth.
Basic Economic Concepts
● Scarcity: Limited resources vs. unlimited wants.
● Opportunity Cost: The value of the next best alternative forgone when making a choice.
● Supply and Demand: The fundamental model explaining how prices and quantities of
goods/services are determined in a market.
Supply and Demand
● Law of Demand: All else equal, as the price of a good falls, the quantity demanded
rises, and vice versa.
● Law of Supply: All else equal, as the price of a good rises, the quantity supplied rises,
and vice versa.
● Market Equilibrium: The point where the quantity demanded equals the quantity
supplied.
Elasticity
● Price Elasticity of Demand: Measures how much the quantity demanded responds to a
change in price.
○ Elastic Demand: Quantity demanded changes significantly with price changes.
○ Inelastic Demand: Quantity demanded changes little with price changes.
● Price Elasticity of Supply: Measures how much the quantity supplied responds to a
change in price.
Market Structures
● Perfect Competition: Many firms, identical products, no barriers to entry.
● Monopoly: One firm, unique product, significant barriers to entry.
● Oligopoly: Few firms, products may be identical or differentiated, some barriers to entry.
● Monopolistic Competition: Many firms, differentiated products, few barriers to entry.
Market Failures and Government Intervention
● Market Failure: When the market fails to allocate resources efficiently on its own.
○ Externalities: Costs or benefits of a market activity borne by a third party.
○ Public Goods: Goods that are non-excludable and non-rivalrous.
● Government Intervention: Policies to correct market failures, including taxes,
subsidies, and regulation.
Macroeconomic Indicators
● Gross Domestic Product (GDP): The total value of all goods and services produced
within a country.
○ Nominal GDP: Measured in current prices.
○ Real GDP: Adjusted for inflation.
● Unemployment Rate: The percentage of the labor force that is unemployed and actively
seeking work.
● Inflation: The rate at which the general level of prices for goods and services is rising.
Fiscal and Monetary Policy
● Fiscal Policy: Government adjustments to spending and taxation to influence the
economy.
○ Expansionary Fiscal Policy: Increasing government spending or decreasing
taxes to stimulate the economy.
○ Contractionary Fiscal Policy: Decreasing government spending or increasing
taxes to slow down the economy.
● Monetary Policy: Central bank actions to control the money supply and interest rates.
○ Expansionary Monetary Policy: Lowering interest rates or increasing the
money supply to boost the economy.
○ Contractionary Monetary Policy: Raising interest rates or decreasing the
money supply to slow down the economy.
International Trade and Finance
● Comparative Advantage: The ability of a country to produce a good at a lower
opportunity cost than another country.
● Trade Balance: The difference between a country’s exports and imports.
○ Trade Surplus: Exports > Imports.
○ Trade Deficit: Imports > Exports.
● Exchange Rates: The value of one currency in terms of another currency.
Economic Growth and Development
● Economic Growth: An increase in a country's production of goods and services over
time.
● Development Economics: The study of how countries achieve economic growth and
improve living standards.
These notes cover fundamental topics in economics and can serve as a foundation for more
detailed study. Let me know if you need more specific information on any topic!
