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    Economics: A Simple Introduction
    Economics: A Simple Introduction
    Economics: A Simple Introduction
    Ebook96 pages1 hour

    Economics: A Simple Introduction

    By K.H. Erickson

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    About this ebook

    Economics: A Simple Introduction offers an accessible guide to the principles and methods of economics, with calculations and over 25 diagrams to support the analysis.

    Understand the four dimensional nature of economics, and how its learning process differs from other subjects.

    Use data points, read graphs, and learn to create your own graphs and how to plot a trend curve. Evaluate the laws of diminishing marginal utility and diminishing returns exhibited by these trend curves, and assess the impact on consumers and producers. Turn curves into lines to find the relationship between two variables using an intercept and slope.

    Find the equilibrium outcome where all sides are balanced and understand its importance for consumers and producers. Examine the factors which facilitate or prevent an equilibrium outcome, and which may lead to a range of possible outcomes.

    Explore the impact of time as static analysis becomes dynamic analysis. Look into short-run shifts in demand or supply, and the affect which they may have on prices and consumption or production levels. Look at changes which can occur over the long-run, specifically the end of the law of diminishing returns.

    Microeconomics overview explains how consumer preferences and budget constraint decide demand, and firm productivity and costs against revenue decide supply. Macroeconomics overview explains how the IS-LM model where goods and money markets balance decides aggregate demand, and the Phillips curve and growth models determine aggregate supply.

    Econometrics is introduced as a method is presented to create value estimates, and economic theory becomes practice.

    LanguageEnglish
    PublisherK.H. Erickson
    Release dateSep 5, 2014
    ISBN9781311743480
    Economics: A Simple Introduction

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      Book preview

      Economics - K.H. Erickson

      Economics: A Simple Introduction

      By K.H. Erickson

      Copyright © 2014 K.H. Erickson

      All rights reserved.

      No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the author.

      Also by K.H. Erickson

      Simple Introductions

      Accounting and Finance Formulas

      Choice Theory

      Corporate Finance Formulas

      eBay

      Econometrics

      Economics

      Financial Economics

      Financial Risk Management

      Game Theory

      Game Theory for Business

      Investment Appraisal

      Marketing Management Concepts and Tools

      Mathematical Formulas for Economics and Business

      Microeconomics

      Table of Contents

      Introduction

      What is Economics?

      Four-Dimensional Economics

      Data Points

      Trend Curves

      Diminishing Marginal Utility

      Best Fit Trend Lines

      Diminishing Returns

      One Outcome: The Equilibrium

      Every Possible Outcome

      The Time Factor

      The Short Run: Shifts in Trends

      The Long Run: Transformed Trends

      Overview of Microeconomics

      Overview of Macroeconomics

      Econometrics and Value Estimates

      Introduction

      As the title suggests, this book is designed to help readers understand economics. While many textbooks may give the specific details for popular economic theory this isn’t necessarily enough to explain the subject, as economics often seems to communicate in a different language and follow a learning process which can appear strange to those who are more used to other subjects. In order to address this problem this book faces some common issues that people may have with economics, explaining how the subject functions and why, presenting the most important economic principles, and addressing misconceptions throughout. Most importantly of all it shows readers how to think like an economist to get the most out of economics. In simple terms this book aims to explain the basic principles and methods which are the basis for each and every area of economics, to prepare readers for any and all future economic analysis.

      The next two sections explains how economics may be seen as involving several different but related dimensions. These include a simple data point, trend curves and lines which combine data points, the equilibrium outcome where relevant trend lines cross, other possible outcomes when the equilibrium doesn’t occur, short-run shifts in the outcome, and the long-run where data points can transform completely. Several sections then build on this idea and explore each of the dimensions in greater detail.

      With basic economic theory explained the focus then moves to using and applying it. An overview is provided for both Microeconomics and Macroeconomics, to show how the two fields relate to each other, and to provide an indication of the major topic areas making up the fields and the role they play in Microeconomic theory and Macroeconomic theory as a whole. Finally, the role of Econometrics is explained as economic theory becomes economic practice, and example data estimates are presented before they are used to find economic relationships and calculate equilibrium values.

      What is Economics?

      It’s very easy to get confused when encountering economics for the first time. While other subjects introduce new facts and formulas, suggest new ways of looking at the world, or explain different skills and abilities to learn, economics often doesn’t seem to offer any of these. And if the apparent failure of economics to offer any clear learning and understanding opportunities wasn’t bad enough, the subject also seemingly wants you to ‘unlearn’ things which you already know, and to instead follow beliefs which often seem counterintuitive, illogical, and just plain wrong.

      The confusion over economics usually originates from a misunderstanding over what it is, and it would be accurate to say that economics is less a specific subject and more a detailed method with which to understand other subjects. While other academic disciplines turn their focus to developing expertise in a certain field and ignore everything outside that field, economics examines the entire world and all that exists within it. But it’s not possible to examine the whole world together at once, and therefore the process needs to be broken down into smaller and more manageable parts, which can be dealt with one at a time. Economics seeks to simplify every aspect of the world down until it can be described in just a sentence or two.

      Economics deals with a complicated and diverse world using generalisations, and these are designed to capture the basic foundations of an idea. These generalisations can later be amended to allow a limitless number of branches to develop from their foundations, each of which can support a different scenario and allow new types of analysis to take place. And the analysis is designed to allow predictions and estimations to be made on what is likely to occur, how others are likely to act, and how people should act if they follow their best interests.

      Generalisations are made possible using assumptions, which eliminate all the scenarios and examples which violate the generalisation being made. Sometimes the assumptions are made in good faith based on supportive evidence or a lack of information which challenges them, and at other times assumptions are made which are known in advance to be wrong. Following assumptions known to be false may feel like going against the entire concept of learning and understanding, and this is why many people struggle with and actively dislike economics. A more helpful way to look at assumptions may therefore be to see them as ‘temporary restrictions’.

      Some examples of generalisations and assumptions used in economics may explain the idea more clearly:

      Example 1

      Generalisation: ‘As the price of a product increases, consumers’ demand for it will decrease.’

      Assumptions: Substitute products are available at a constant price; product is a normal good where consumers want more of it and

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