Introduction to Economics

An economy - is the institutional structure through which individuals in a society coordinate their diverse wants and desires.  

An economic system is the system by which the economy is organized. For example, if an economy is organized through markets, it is a market economic system.

Discipline of economics studies how scarce resources are allocated among the alternative users. (Resources: land, labor, capital.)

Economics - is the study of economies, the study of how human beings coordinate their wants, given the institutional structures of the society.

In the study of economics, coordination refers to how the three central problems facing any economy are solved.

These central problems are:

1. What, and how much, to produce.
2. How to produce it.
3. For whom to produce it.

Economics is divided into two different branches: Micro & Macro economics.

Macroeconomics : deals primarily with aggregates (total amount of goods & services produced by society) and absolute levels of prices. It address issues such as level of growth of national output (GNP & GDP), Interests rates, unemployment and inflation.

Microeconomics : It is study of public, business choices. ( for example consumer decide how much of various goods to purchase, workers decide what job to take & business people decide how many workers to hire and how much output to produce.)

Because prices have important effects on that individuals decisions. The microeconomics is frequently called "Price theory".

Why do we have to make choices?

That is because of scarcity (the goods available are too few to satisfy individuals' desires).

Opportunity costs of a choice to use resources - is the next best alternative use of those resources sacrificed by making a choice

ECONOMIC KNOWLEDGE IN ONE SENTENCE: TANSTAAFL

Once upon a time, Tanstaafl was made a king of all the lands. His first act was to call all his economic advisers and tell them to write up all the economic knowledge the society possessed. After the years of work, they presented their monumental effort: 25 volumes, each about 400 pages long. But in the interim, king Tanstaafl had become a very busy man, what with running a kingdom of all the lands and everything. Looking at the lengthy volumes, he told his advisers to summarize their findings in one volume.

Despondently, the economists returned to their desks, wondering how they could summarize what they'd been so careful to spell out. After many more years of rewriting, they were finally satisfied with their one-volume effort, and tried to make an appointment to see the king. Unfortunately, affairs of state had become even more pressing than before, and the king couldn't take the time to see them. Instead he sent word to them that he couldn't be bothered with the whole volume, and ordered them, under the threat of death (for he had become a tyrant), to reduce the work to one sentence.

The economists returned to their desks, shivering in their sandals and pondering the impossible task. Thinking about their fate if they were not successful, they decided to send out for the last meal. Unfortunately, when they were collecting money to pay for the meal, they discovered they were broke.

The disgusted delivery man took the last meal back to the cook, and the economists started down the path to the beheading station. On the way, the delivery man's parting words echoed in their ears. They looked at each other and suddenly they realized the truth. " We're saved! " they screamed. " That's it! That's economic knowledge in one sentence!" They wrote the sentence down and presented it to the king, who thereafter fully understood all economics problems. (He also gave them a good meal.) The sentence?

There Ain't No Such thing As A Free Lunch - TANSTAAFL

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