Lesson 01 # Nature & Scope of Economics Flashcards
One-Shot Revision
What is Economics?
Economics refers to make choice efficiently in the presence of scarcity.
The words economics derived from?
Economics originated from Greek work “Oikionomia” which means household management.
Define key terms of economics
Economy: It refers to the area where we live & earn, e.g. Pakistan.
Economical: Anything that is cheap & affordable.
Economic: There are two motives for any work means Social Welfare-to serve people for free or Economic (to work for money) means money related.
Economics: Many definitions given by economists on this subject.
Econometrics: A subject which includes Math & Stats.
Economist: A person who is master in Economics.
Define Business Economics
The use of economic analysis to make business decisions involving the best use of an organization’s scarce resources.
Write definition of economics by four famous economists
DEFINITIONS OF ECONOMICS BY FOUR ECONOMISTS:
Economics is a science of wealth (Adam Smith).
Economics is a science of material welfare (Marshall).
Economics is science of scarcity & choice (Robbins).
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people. (Samuelson).
Three facts derived from every definition of Economics, that are?
Resources are scarce/limited.
Wants and needs are unlimited.
We have to make choice.
What is Scarcity?
A situation of scarcity is one in which goods are limited relative to desires.
What is Efficiency?
Efficiency denotes the most effective use of a society’s resources in satisfying people’s wants and needs.
What are scarce goods?
A scarce goods is a goods for which the choice of one alternative requires
that another should be given up.
TYPES OF SCARCITY?
Demand Induced refers to rising demand when supply remains the same.
Supply Induced refers to over-consumptions of resources.
Structural refers to reduced supply due to economic or environmental reasons, Government intervention and so on leads to scarcity.
Absolute Scarcity refers to the physical limitation of resources.
Relative Scarcity refers to the value we place on resources.
Difference between scarcity & choice?
Scarcity refers to the limited availability of resources, while choice is the decision-making process in allocating those limited resources.
Economics is science or an art?
Economics is a science because it uses systematic methods to study resource allocation and an art because it requires skillful application of these methods to address complex real-world issues.
Scope of Economics?
- Applied Economics: Utilizes economic principles to solve real-world problems.
- Descriptive Economics: Describes and gathers data about economic phenomena.
- Economic Theory: Develops models to explain and predict economic behavior.
Contributions of four economists?
- Adam Smith: Introduced the concept of the invisible hand.
- Alfred Marshall: Developed the supply and demand price mechanism.
- Lionel Charles Robbins: Defined economics as the study of scarcity.
- John Maynard Keynes: Advocated for government intervention in economic cycles.
Conflicts between definitions of four economists?
- Adam Smith: Emphasized self-interest drives economic prosperity.
- Alfred Marshall: Stressed equilibrium through supply and demand.
- Lionel Charles Robbins: Focused on scarcity and choice in economics.
- John Maynard Keynes: Highlighted government’s role in managing demand.
Positive VS Normative Economics?
Positive economics describes what is, while normative economics prescribes what ought to be.
Business Economics is Normative or Positive Economics?
Business economics is a normative science which is interdisciplinary/multidisciplinary and pragmatic(practical) in approach.
Types of Business Economics?
There are two categories of business issues to which economic theories can be directly applied, namely:
Microeconomics applied to operational / internal issues.
Macroeconomics applied to environmental / external issues.
What is Microeconomics with Example?
MICROECONOMICS:
The branch of economics which today is concerned with the study of individual unit of economy.
Example: Market, Firms and Household etc.
What is Macroeconomics with Example?
MACROECONOMICS:
The branch of economics which is concerned with the study of aggregate economy as a whole.
Example: Total investment and consumption of an economy, Money and Interest Rates, Financial Crises, Economic Growth of Nations and so on.
Micro VS Macro?
Microeconomics studies individual markets, while macroeconomics examines the overall economy.
What is Factor of Production with example?
Factors Of Production is an economic term that describes the inputs used in the production of goods or services to make an economic profit. OR…
These include any resource needed for the creation of a good or services.
The factors of production are: Land, Labor, Capital or Entrepreneur.
Define 4 factors of production.
- Land: Natural resources used in production, like minerals.
- Labor: Human effort in production, like factory workers.
- Capital: Man-made resources aiding production, like machinery.
- Entrepreneur: Innovator organizing resources, like a startup founder.
Tell rewards or risks associated with each factor of production>
- Land: Earns rent; No risk predetermined.
- Labor: Earns wages; No risk predetermined.
- Capital: Earns interest; No risk predetermined.
- Entrepreneur: Earns profit; risks predetermined means maybe profit or loss.
Three major economic problems?
- What To Produce & In What Quantity?
- How To Produce & Where To Produce?
- For Whom To Produce & To Distribute?
Four major economic system?
- The Free Market /Free Enterprise / Capitalist Economic System.
- The Planned / Command / Socialist Economic System.
- The Mixed Economic System.
- Islamic Economic System.
Define each economic system with example
- Free Market: Market-driven economy with private ownership, like the USA.
- Planned Economy: Government-controlled economy with state ownership, like North Korea.
- Mixed Economy: Combines private and public sectors, like Sweden.
- Islamic Economy: Sharia-compliant system prohibiting interest, like Saudi Arabia.
Basic economic school of thoughts?
- Classical School Of Thoughts
- New Classical School Of Thoughts
- Modern School Of Thoughts
Tell about each economic school of thoughts
- Classical School of Thought: Emphasizes market self-regulation and minimal government intervention, like Adam Smith.
- New Classical School of Thought: Focuses on rational expectations and market efficiency, like Robert Lucas.
- Modern School of Thought: Integrates behavioral economics and complex systems analysis, like Paul Samuelson.
What is PPF / PPC?
The PPF (Production Possibility Frontier) or PPC (Production Possibility Curve) illustrates the maximum output combinations of two goods an economy can produce with given resources and technology.
Public VS Private Goods?
Public goods are available to all without depletion (non-rivalrous) and exclusion (non-excludable); private goods are limited to individual use (rivalrous) and can exclude non-payers (excludable).
Consumption VS Capital Goods?
Consumption goods are used for immediate satisfaction, while capital goods are used for production of other goods.
Define Opportunity Cost with example
Opportunity cost is the value of the next best alternative foregone, like choosing to invest in stocks instead of bonds.
