Introduction

to Economics
Samip Kirat
 Reflective Questions
1.What do you understand about the term "economics," and how do you
think it impacts our daily lives?
2.Can you think of any examples from your own experiences where
economic principles were at play?
3.How do you believe economics influences decision-making, both on a
personal level and within society as a whole?
4.What are some key factors you think contribute to a country's
economic growth or decline?
5.In your opinion, what role does scarcity play in shaping economic
choices and behaviors?
6.How do you think supply and demand dynamics affect prices in
different markets?
• Why do you think it's important for individuals to have a basic
understanding of economics, regardless of their field of study or
profession?
• In your opinion, why is it essential to understand the psychological
aspects of economics?
• Have you ever noticed any connections between your own spending
habits and psychological factors?
• Can you think of examples where societal trends or behaviors have
influenced economic outcomes?
• Can you think of any real-world applications where economics and
psychology intersect?
Etymological Meaning of Economics
The word "economics" originates from the Greek word
"oikonomia,"
"oikos," = "house" or "household," and
"nomos," = "custom" or "law."
Therefore, etymologically, economics can be understood as the
management or laws governing the household or, more broadly,
the management of resources within a community or society.
Over time, the concept evolved to encompass broader societal and
economic principles, leading to the modern understanding of
economics as the study of the production, distribution, and
consumption of goods and services within an economy.
Father of Economics
• The title "father of economics" is often attributed to Adam Smith,
a Scottish philosopher and economist who is widely regarded as
one of the founding figures of modern economics.
• due to the profound impact of his seminal work, "An Inquiry into
the Nature and Causes of the Wealth of Nations," published in
1776.
Introduction
- Economics is a social science that studies how individuals,
businesses, governments, and societies allocate limited
resources to satisfy unlimited wants and needs.
- It involves the analysis of production, distribution, and
consumption of goods and services, as well as the behavior
of individuals and organizations in response to economic
incentives.
• Economics encompasses various subfields, including
microeconomics (which examines individual markets and
decision-making units) and macroeconomics (which focuses on
aggregate economic phenomena such as inflation, unemployment,
and economic growth).
• It also includes specialized areas such as international economics,
development economics, labor economics, and behavioral
economics, among others. Overall, economics seeks to understand
and explain the principles governing resource allocation and
decision-making in various economic systems and environments.
 Core concepts
Scarcity:
Resources such as time, money, labor, and natural resources are limited,
while human wants and needs are virtually unlimited. Scarcity is the
fundamental economic problem that arises from this imbalance.
Choice:
Due to scarcity, individuals and societies must make choices about how to
allocate their resources. Every decision involves trade-offs, as choosing one
option often means forgoing another.
Supply and Demand:
The forces of supply and demand determine prices and quantities in a market
economy. Supply refers to the quantity of a good or service that producers are
willing to offer, while demand represents the quantity that consumers are
willing to buy. Prices adjust to balance supply and demand.
GDP
Gross Domestic Product (GDP) is one of the most widely used indicators to
measure the economic performance of a country. It represents the total
monetary value of all goods and services produced within a country's
borders over a specified period, typically a year or a quarter. GDP is often
used as a gauge of a nation's economic health and to compare the economic
performance of different countries.
Gross National Product (GNP):
Similar to GDP, GNP measures the total value of all final goods and services
produced by the citizens of a country, whether they are located domestically
or abroad. GNP includes the value of goods and services produced by a
country's citizens and businesses, regardless of where they are located, and
excludes the value produced by foreign citizens and businesses within the
country's borders.
Gross National Income (GNI):
GNI measures the total income earned by a country's residents, including
both domestic and foreign sources. It includes GDP plus net income earned
from abroad (e.g., wages and profits earned by residents from foreign
investments minus similar payments made to foreigners).
Personal Income:
Personal income is the total income received by individuals before
personal income taxes are deducted. It includes wages, salaries,
bonuses, interest, dividends, rental income, and government transfer
payments (such as unemployment benefits and pensions) but
excludes personal income taxes.
Per Capita:
Per capita measures are calculated by dividing a particular
economic measure (such as GDP, income, or consumption) by the
population of a country or region. Per capita measures provide a way
to compare economic performance on a per-person basis, allowing
for better comparisons between countries of different sizes.
 Types of Economics
• Microeconomics:
Microeconomics is the branch of economics that studies the behavior of
individual agents, such as households, firms, and industries, focusing
on how they make decisions regarding the allocation of resources,
consumption, and production.
• Macroeconomics:
Macroeconomics is the branch of economics that examines the overall
performance and behavior of an economy as a whole. It deals with
topics such as inflation, unemployment, economic growth, and
government policies that impact the entire economy.
 Characteristics of Economics
• Study of Human Behavior:
Economics primarily focuses on the behavior of individuals, households, firms, and
governments in making economic decisions. It examines how human beings make
choices and interact with each other in markets and other economic settings.
• Subjectivity and Complexity:
Economic phenomena often involve subjective preferences, values, and perceptions
that vary among individuals and societies. Economic outcomes are influenced by a
multitude of factors, including social, cultural, and psychological aspects, which add
complexity to the analysis.
• Interdisciplinary Nature:
Economics draws upon insights from other social sciences such as sociology,
psychology, political science, and anthropology to understand economic behavior and
outcomes. It recognizes the interconnectedness of economic activities with broader
social structures and institutions.
Qualitative and Quantitative Methods:
Economics employs both qualitative and quantitative methods to study
economic phenomena. While quantitative analysis involves statistical
techniques and mathematical models to analyze data and test hypotheses,
qualitative methods such as case studies and interviews are also used to
understand the underlying social processes.
Policy Orientation:
Economics often has a policy orientation, seeking to provide insights into how
economic policies can address societal challenges such as poverty, inequality,
unemployment, and environmental degradation. It aims to inform policy debates
and decision-making by evaluating the potential consequences of different
policy options.
Dynamic and Evolving Field:
Economics is a dynamic and evolving field of study that adapts to changes in
society, technology, and global economic conditions. New theories, models, and
empirical methods continually emerge in response to new challenges and
opportunities.
Importance of Economics in everyday life
• Guides financial decisions like budgeting, saving, investing, and borrowing.
• Influences what, how much, and when to buy goods and services based on
economic factors.
• Shapes decisions about employment, career choices, and workforce entry.
• Affects decisions related to housing, rental, or real estate investment.
• Shapes policies impacting taxation, healthcare, education, transportation,
and social welfare.
• Guides decisions in production, pricing, investment, and market entry for
businesses.
• Impacts availability, prices, and choices of goods due to trade policies and
globalization.
• Environmental Sustainability: Considers trade-offs between economic
growth and environmental conservation.
• Ultimately affects individuals' standard of living, income levels, and overall
welfare.
• Have a wonderful day