WELCOME TO THE COURSE ECON 1009 Intro Economics and Finance - - PowerPoint PPT Presentation

WELCOME TO THE COURSE

• ECON 1009 – Intro Economics and Finance
• Coordinator/lecturer/tutor: Dr Wahid Murad
• E-mail: wahid.murad@unisa.edu.au
• Consult hours: Tues 2-3pm & Thu 11am-12pm

at Student Common Room, David Pank Building, Level 2

• Consultation at any other times by appointment
• Important materials: (1) course outline, (2)

study guide, (3) lecture slides, (4) tutorial questions & solutions, and (5) textbook

TOPIC 1

Thinking like an economist

Presenter: Dr Wahid Murad

KEY POINTS

• The problem of scarcity
• Scarce resources and production
• Economics: the study of scarcity and choice
• The branches of economics
• The methodology of economics
• Hazards of the economic way of thinking
• Why do economists disagree?
• Positive and normative economic statements

THE PROBLEM OF SCARCITY

• The condition in which human wants are

forever greater than the available supply

• f time, goods, services and resources.
• Examples:

– individuals: bigger flat-screen TV, more restaurant meals, more leisure time – governments: highways and defence.

SCARCE RESOURCES AND PRODUCTION

• Because of the economic problem of

scarcity, no society has enough resources to produce all the goods and services necessary to satisfy all human wants.

• Economists divide resources into three

main categories: land, labour and capital.

THREE CATEGORIES OF RESOURCES

RESOURCES: LAND

• Any resource provided by nature.
• Includes anything natural above or below

the ground.

Examples: forests, minerals, oil, wildlife, rivers, lakes and oceans.

• May be renewable or non-renewable.

RESOURCES: LABOUR

• The mental and physical human capacity
• f workers to produce goods and

services.

• Examples: services of farmers, nurses,

doctors, factory workers, lawyers, professional football players, teachers and economists.

ENTREPRENEURSHIP

• Entrepreneurship is the creative ability of

individuals to seek profits by combining resources to produce new or existing products –Examples:

• Bill Gates, Jeff Bezos, Elon Musk, Joseph

Nathan, Mark Zuckerberg, and many others like them

RESOURCES: CAPITAL

• The physical plant, machinery and

equipment used to produce other goods.

• They are human-made goods that do not

directly satisfy human wants.

• In economics, money is not capital. It

simply gives a measure of the value of assets, including capital goods. Money is used simply to purchase goods and services for consumption.

ECONOMICS: THE STUDY OF SCARCITY AND CHOICE

• The problem of scarcity forces people to

make choices. It is the basis for the definition of economics.

• Economics is the study of how society

chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants.

ECONOMICS

• Society makes two kinds of choices:

– economy-wide (Macro) – individual (Micro)

• Economics consists of two main

branches:

– Microeconomics – Macroeconomics

TWO BRANCHES OF ECONOMICS

• studies decision-making by

a single individual, household, firm or industry

Microeconomics

• studies the performance
• f, and decision-making in,

the economy as a whole

Macroeconomics

THE METHODOLOGY OF ECONOMICS

• Economists (like scientists) use the same

scientific method for solving economic problems.

• The scientific method is a step-by-step

procedure for solving problems.

THE STEPS IN THE ECONOMIC MODEL-BUILDING PROCESS

EXAMPLE: PETROL CONSUMPTION

• Petrol consumption by motorists has fallen. Why?

Identifying the problem

• Identify the variables − petrol price, car prices.
• Express them verbally, graphically or mathematically.

Developing a model

• Gather data that tells us how well the model estimates
• r predicts relationships.

Testing the model

HAZARDS OF THE ECONOMIC WAY OF THINKING

• There are two potential problems to be

aware of:

• 1. the ceteris paribus assumption
• 2. possible confusion of association and

causation

CETERIS PARIBUS

• Latin phrase: means that while certain

variables change, ‘all other things remain unchanged’.

• The assumption holds everything else

constant and therefore allows us to concentrate on the study of the relationship between two key variables.

ASSOCIATION VERSUS CAUSATION

• We cannot always assume that when one event follows

another, the first caused the second.

• For example, assume Australia’s imports from

Indonesia rose last month. Two events might be associated: 1) the coronavirus related deaths worldwide grew last month. 2) currency movements reduced the cost to Australians of buying Indonesian goods.

• But are they both possible causes?

POSITIVE ECONOMIC STATEMENT

• Deals with facts and therefore addresses ‘what

is’ or ‘verifiable’ questions.

• The key consideration for a positive statement

is whether the statement is testable or not and whether it is true or false.

• Examples:

– ‘Airbags save lives.’ – ‘Smoking is harmful to your health.’ – ‘Today’s temperature is 300c.’

NORMATIVE ECONOMIC STATEMENT

• Normative economics is an analysis based on

value judgments.

• It cannot be proven by facts to be true or false.
• Examples:

– ‘Every teenager who wants a job should have one’. – ‘Keeping inflation under control is more important than teenage unemployment’.