AHMADU BELLO UNIVERSITY ZARIA

FACULTY OF ADMINISTRATION
DEPARTMENT OF PUBLIC ADMINISTRATION
Course title: principles of economics
REG NO :U24PA1015
NAME: Sabi'u Ibrahim
 As signment

1) define micro economics

2) list and explain the objectives of micro economics

3) define macro economics

4) list and explain the objectives of macro economics

5) distinguish between microseconds and macro economics

6a) Explain in details scientific method in economics

6b) list and explain steps of scientific theories

6c) discuss the uses of theoretical economics

7) Explain the concept of deductive method and inductive method in Economics including there Advantages and the disadvantages

Introduction

DEFINITION:

Economics studies how societies manage scarce resources to

produce, distribute, and consume goods and services. It is a social

science.

What Is Economics?

Economics is a social science that focuses on the production,

distribution, and consumption of goods and services. The study of

economics is primarily concerned with analyzing the choices that

allocate limited resources.

Economics has ramifications on a wide range of other fields,

including politics, psychology, business, and law.

KEY TAKEAWAYS

Economics is the study of how people allocate scarce

resources for production, distribution, and consumption, both

individually and collectively.

The field of economics is connected with many others and has

ramifications on them, such as politics, government, law, and

business.

The two branches of economics are microeconomics and

macroeconomics.

Economics focuses on efficiency in production and exchange.

Gross domestic product (GDP) and the Consumer Price Index

(CPI) are two of the most widely used economic indicators.

Credit: Zoe Hansen / Investopedia

Understanding Economics

Assuming humans have unlimited wants within a world of limited

means, economists analyze how resources are allocated for

production, distribution, and consumption.

The study of microeconomics focuses on the choices of

individuals and businesses, and macroeconomics concentrates on

the behavior of the economy on an aggregate level.

One of the earliest recorded economists was eighth century B.C.

time needed to be allocated efficiently to overcome scarcity. The

publication of Adam Smith’s 1776 book “An Inquiry Into the Nature

and Causes of the Wealth of Nations” sparked the beginning of the

current Western contemporary economic theories.

Microeconomics

Microeconomics studies how individual consumers and firms

make decisions to allocate resources. Whether a single person, a

household, or a business, economists may analyze how these

entities respond to changes in price and why they demand what

they do at particular price levels.

Microeconomics analyzes how and why goods are valued

differently, how individuals make financial decisions, and how they

trade, coordinate, and cooperate.

Within the dynamics of supply and demand, the costs of producing

goods and services, and how labor is divided and allocated,

microeconomics studies how businesses are organized and how

individuals approach uncertainty and risk in their decision making.

Objective of microeconomics
Understanding Consumer Behavior

One of the primary objectives of microeconomics is to understand how

consumers make choices based on their income, preferences, and

prices of goods. It analyzes how individuals maximize their

satisfaction or utility within budget constraints. Microeconomics uses

concepts like the law of demand, indifference curves, and marginalutility to explain
consumption patterns.
Analyzing Production Decisions

Microeconomics studies how firms decide what to produce, how much

to produce, and the methods of production. It focuses on cost

structures, production functions, and input-output relationships to

understand the optimal utilization of resources. The goal is to minimize

cost and maximize output and profit. This analysis helps managers

make decisions regarding resource allocation, process improvement,

and investment in technology. It also helps determine economies of

scale and efficiency in production systems.

Price Determination in Markets

A key objective of microeconomics is to analyze how prices are

determined in different types of markets. It explains how the forces of

demand and supply interact to reach equilibrium price and quantity.

Microeconomics also studies how prices change in response to shifts

in market conditions. Understanding price determination is essential

for business strategy, as it impacts revenue, market competition, and

consumer behavior. It also guides policy on price controls and

subsidies.

Allocation of Resources

Efficient allocation of scarce resources is central to microeconomic

theory. It seeks to understand how limited resources can be distributed

optimally among competing uses to maximize output and welfare.

Microeconomics examines how households and firms allocate

resources based on prices, costs, and preferences. It helps in

evaluating market efficiency and the role of price signals in guiding

increased productivity and economic growth.

Understanding Market Structures

Microeconomics analyzes different market structures—perfect

competition, monopoly, monopolistic competition, and oligopoly—to

understand how they influence prices, output, and efficiency. Each

structure affects the degree of competition and consumer welfare

differently. Studying these structures helps in assessing market

performance and the behavior of firms under varying competitive

pressures. It is vital for regulatory bodies to identify anti-competitive

practices and ensure a fair marketplace through policy and legal

measures.

Distribution of Income and Wealth

Microeconomics explores how income and wealth are distributed

among the factors of production—land, labor, capital, and

entrepreneurship. It studies the pricing of these factors through rent,

wages, interest, and profit. The objective is to understand economic

inequalities and suggest ways to ensure fair distribution. This helps

governments in formulating labor laws, wage policies, and social

welfare programs. It also informs debates on income taxation and

economic justice.

Welfare and Efficiency Analysis

Microeconomics aims to maximize social welfare by studying

economic efficiency. It analyzes conditions for achieving allocative

efficiency (optimal allocation of resources) and productive efficiency

surplus, producer surplus, and Pareto efficiency are used to evaluate

welfare. It helps identify market failures and the need for government

intervention in case of externalities, public goods, or monopolistic

exploitation.

Business Decision-Making

Microeconomics provides a framework for rational business decision-

making. Firms use microeconomic tools to determine pricing

strategies, production levels, input combinations, and market entry or

exit. Understanding cost curves, demand elasticity, and competitive

dynamics allows firms to optimize profit and market share.

Microeconomics also supports risk analysis and forecasting, making it

essential for strategic planning, budgeting, and resource management

in businesses of all sizes.

Macroeconomic

Macroeconomics isthe branch of economics that studies thebehavior and performance of an

focus is recurrent economic cycles and broad economic growth

and development.

It focuses on foreign trade, government fiscal and monetary policy,

unemployment rates, the level of inflation, interest rates, the growth

of total production output, and business cycles that result in

expansions, booms, recessions, and depressions.

Using aggregate indicators, economists use macroeconomic

models to help formulate economic policies and strategies.

Objectives of macroeconomic
.

Difference between microeconomics and macroeconomic

Microeconomics involves several key principles, including but not

limited to:

Supply, demand, and equilibrium : Prices are determined by the law

of supply and demand. Suppliers offer the same price demanded by

consumers in a perfectly competitive market. This creates economic

equilibrium.

Production theory : This is the study of how goods and services are

created or manufactured.

Costs of production : The price of goods or services is determined by

the cost of the resources used during production, according to this

theory.

Labor economics : This principle looks at workers and employers to

understand patterns of wages, employment, and income.

The rules in microeconomics flow from a set of compatible laws and

theorems rather than beginning with empirical study.

Macroeconomics

Macroeconomics studies the behavior of a country and how its

and economies rather than individuals or specific companies. This is

why it's referred to as a top-down approach. It tries to answer

questions such as “What should the rate of inflation be?” or “What

stimulates economic growth?”

of markets, businesses, and individuals.

The Scientific Method in Economics Explained

The scientific method in economics is the cornerstone of rigorous

economic research. By following a structured process of observation,

hypothesis formulation, testing, analysis, and conclusion, economists

can ensure that their research is systematic, objective, and verifiable.

This method enables economists to explore complex economic

phenomena, test economic theories, and provide insights that drive

informed decision-making in both policy and business contexts.

In this article, we will dive deep into the scientific method, explaining

its key steps, how it is applied in economics, and the importance of key

characteristics like empiricism, verifiability, and ethical neutrality.

Wha

Key Steps of the Scientific Method in Economics

The first step in the scientific method is observation. Economists start

by observing real-world economic phenomena to identify trends,

anomalies, or areas of interest. These observations can come from a

variety of sources: data on unemployment rates, shifts in consumer

spending, changes in inflation, or fluctuations in stock prices.

economic recession, consumer spending decreases sharply. This

observation raises questions about the underlying causes of this

behavior, leading to further investigation.

Formulating a Hypothesis

Once an observation is made, the next step is to formulate a

hypothesis. A hypothesis is a testable statement that predicts a

relationship between two or more variables. In economics, hypotheses

often explore cause-and-effect relationships. For example, based on

the observation that consumer spending falls during recessions, an

economist might hypothesize, “An increase in unemployment leads to

a decrease in consumer spending.”

The hypothesis serves as the foundation for further research. It

specifies what the economist expects to find and provides a clear

direction for data collection and analysis.

Testing the Hypothesis

After formulating a hypothesis, the next step is to test it using

empirical data. In economics, this often involves collecting data from a

variety of sources, such as government reports, financial markets, or

business surveys. Economists use statistical and econometric tools to

analyze this data and determine whether the hypothesis holds true.

For example, to test the hypothesis that unemployment reduces

consumer spending, an economist might gather data on unemployment

rates and consumer spending levels over a set period. They would then

use statistical models to analyze whether a correlation exists between

The testing phase is critical because it allows economists to move

from theoretical assumptions to evidence-based conclusions. This

ensures that the findings are not just speculative but are grounded in

observable data.

Analyzing the Results

Once the data is collected and analyzed, economists interpret the

results to see if they support or contradict the hypothesis. This step

involves assessing the strength and direction of relationships between

variables. Economists may calculate p-values or confidence intervals

to determine the statistical significance of their findings.

In our example, if the analysis shows a strong negative correlation

between unemployment and consumer spending, the economist can

conclude that the hypothesis is supported. Conversely, if no significantrelationship is found,

Inductive and deductive method in economics