Principles of Economics

Lecture 1

Textbooks:

1.
Principles of Microeconomics
Book by Dhingra I.C. , Garg V.K., Published by Sultan Chand & Sons

2.
Macroeconomics 1
Book by Hendrik Van den Berg

Textbooks recommended in 2017:

3.
Microeconomics
Book by David Besanko and Ronald R. Braeutigam, Published by ​Wiley (2012)

4.
Economics
Book by Gerald Stone and Ralph T. Byrns, HarperCollins College Publishers (1999)

1
Not validated
* Economics is a multidimensional discipline “Number of alternatives”

Nature and Definition of Economics:

“​Production of goods and services together with their distribution among individuals​” 2
-​Samuelson

“​Economics studies the the welfare of societies​” -​Pigou3

“​Economics studies a human behavior as a relationship between objectives and the means
by which you realize objectives taking into account that the means have alternative uses​”

Radical definition of economics:

“​Economics is the science which studies economic and social laws that governs production
process​”

“​Economics has also been identified as a science which is concerned with the study of
exchange forms witness by human beings​”

Forms of Exchange:
1. Barter
In primitive societies when article or commodity exchanged by one another. The
condition of barter system to operate os the “Coincidence of wants”
2. Triangular Exchange
Involving three parties and possible through money as means of exchange.

From the definitions here we can conclude that economics involve scientific theories and
three elements:
1. Scientific facts
2. Quantitative variables
3. Some assumptions (needed to human behavior)

* Economic man assumption: Individual behavior is to realize private benefit or interest.

Benefits of Studying Economics:

Economics will allow individuals to have an idea about how the economic system operates.

2
Full definition: “Economics is the study of how men and society choose, with or without the use of
money, to employ scarce productive resources which could have alternative uses, to produce various
commodities over time and distribute them for consumption now and in the future amongst various
people and groups of society” -Paul A. ​Samuelson
3
Arthur Cecil Pigou
The assessment of the economic system behavior involve:
1. Production
2. Distribution
3. Consumption
4. Exchange

Economic Analysis:
Economic analysis utilize economic theory which use to make logical and rational analysis.
Economic theory is a group of definitions and assumptions.
Steps involved in the construction of economic theory are: (Scientific approach)
● Identifying the economic phenomena and their study.
● Advancing assumptions relevant to the phenomena under investigation.
● Driving results from relevant to the assumptions.
● Testing of the results to confirm whether they are align with the real observations.

Types of Economic Analysis:

Economic analysis involves logical reasoning and it has a number of types:
● According to the capacity of the economic unit we have:
a. Microeconomic analysis which investigate individual units. (firm, industry,
household, investor)
b. Macroeconomic analysis that is the study of the entire economy.
● Economic analysis that deals with the comprehensiveness of variables so we
distinguish:
a. Simple economic realities where only one economic variable is involved.
b. Multiple economic analysis wear number of variables are involved.
● Economic analysis which reveal the relationship of economic variables with time,
here we have:
a. Static economic analysis which involves the study of variable at a specific
time.
b. Dynamic which concerned with the a successive period of time for the
variable involved.
c. Comparative economic analysis, here 2 periods of time are taken for
comparing the variable.

Among other uses economic analysis can:

1. Assist to make selection among alternatives.
2. Making forecast depending on expect change.
3. Valuation of the economic system performance.