Introduction to Economics & Macroeconomics

Dr. A K M Nazrul Islam

Adjunct Associate Professor

School of Business and Entrepreneurship

Independent University, Bangladesh

15th June 2021 1

Concepts of Economics

 According to Lionel Robbins, “Economics is the science which studies human

behavior as a relationship between ends and scarce means which have
alternative uses.”

 Professor Alfred Marshall defined economics, “is a study of man in the

ordinary business of life. It enquires how he gets his income and how he
uses it. Thus, it is on the one side, the study of wealth and on the other
and more important side, a part of the study of man”.

-Economics is the social science that studies production, distribution and

consumption of goods and services. 

-Economics focuses on the behaviour and interactions of economic agents and

how economies work.
Resources in Economics and Their Types

 Definition of Resource: A resource is a source or supply from which a benefit is

produced and that has some utility. 

 In economics a resource is defined as a service or other asset used to produce

goods and services that meet human needs and wants. Economics itself has been
defined as the study of how society manages and allocates its scarce resources.

 Types of Resources: The Classical economics recognizes three categories of

resources, also referred to as factors of production: land, labor and capital. Land
includes all natural resources and is viewed as both the site of production and the
source of raw materials. Labour or human resource consists of human effort
provided in the creation of products, paid in wage. Capital consists of human-
made goods or means of production (machinery, buildings, and other
infrastructure) used in the production of other goods and services, paid
in interest.
Scarcity of Resources and Need to Study Economics

 Scarcity is when the means to fulfill ends are limited and costly. It is the
foundation of the essential problem of economics: the allocation of limited
means to fulfill unlimited wants and needs. Even free natural resources can
become scarce if costs arise in obtaining or consuming them, or if consumer
demand for previously unwanted resources increases due to changing
preferences or newly discovered uses.
Scarcity and Three Central Questions
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Importance of Economics
Types of Economics
The Scope of Economics
Microeconomics and Macroeconomics

TABLE 1.1 Examples of Microeconomic and Macroeconomic Concerns

Divisions
of Economics Production Prices Income Employment
Microeconomics Production/output in Price of individual Distribution of Employment by
individual industries and goods and services income and individual businesses
businesses   wealth and industries
 
How much steel Price of medical care Wages in the auto Jobs in the steel
How much office Price of gasoline industry industry
space Food prices Minimum wage Number of employees
How many cars Apartment rents Executive salaries in a firm
Poverty Number of
accountants
Macroeconomics National Aggregate price level National income Employment and
production/output   unemployment in
  the economy

Total industrial output Consumer prices Total wages and Total number of jobs
Gross domestic Producer prices salaries   Unemployment rate
product Rate of inflation Total corporate
The Scope of Economics
The Diverse Fields of Economics

TABLE 1.2 The Fields of Economics

Behavioral economics uses psychological theories relating to emotions and social context to help understand
economic decision making and policy. Much of the work in behavioral economics
focuses on the biases that individuals have that affects the decisions they make.

Comparative economic examines the ways alternative economic systems function. What are the advantages
systems and disadvantages of different systems?
Econometrics applies statistical techniques and data to economic problems in an effort to test
hypotheses and theories. Most schools require economics majors to take at least one
course in statistics or econometrics.
Economic development focuses on the problems of low-income countries. What can be done to promote
development in these nations? Important concerns of development for economists
include population growth and control, provision for basic needs, and strategies for
international trade.
Economic history traces the development of the modern economy. What economic and political events
and scientific advances caused the Industrial Revolution? What explains the
tremendous growth and progress of post-World War II Japan? WhatContinued...
caused the Great
Depression of the 1930s?
The Scope of Economics
The Diverse Fields of Economics

TABLE 1.2 The Fields of Economics (continued)

Environmental economics studies the potential failure of the market system to account fully for the impacts of
production and consumption on the environment and on natural resource depletion.
Have alternative public policies and new economic institutions been effective in
correcting these potential failures?
Finance examines the ways in which households and firms actually pay for, or finance, their
purchases. It involves the study of capital markets (including the stock and bond
markets), futures and options, capital budgeting, and asset valuation.
Health economics analyzes the health care system and its players: government, insurers, health care
providers, and patients. It provides insight into the demand for medical care, health
insurance markets, cost-controlling insurance plans (HMOs, PPOs, IPAs), government
health care programs (Medicare and Medicaid), variations in medical practice, medical
malpractice, competition versus regulation, and national health care reform.
The history of economic which is grounded in philosophy, studies the development of economic ideas and
thought, theories over time, from Adam Smith in the eighteenth century to the works of
economists such as Thomas Malthus, Karl Marx, and John Maynard Keynes. Because
economic theory is constantly developing and changing, studying the history of ideas
helps give meaning to modern theory and puts it in perspective. Continued...
The Scope of Economics
The Diverse Fields of Economics

TABLE 1.2 The Fields of Economics (continued)

International economics studies trade flows among countries and international financial institutions. What are
the advantages and disadvantages for a country that allows its citizens to buy and sell
freely in world markets? Why is the dollar strong or weak?
Labor economics deals with the factors that determine wage rates, employment, and unemployment.
How do people decide whether to work, how much to work, and at what kind of job?
How have the roles of unions and management changed in recent years?
Law and economics analyzes the economic function of legal rules and institutions. How does the law
change the behavior of individuals and businesses? Do different liability rules make
accidents and injuries more or less likely? What are the economic costs of crime?
Public economics examines the role of government in the economy. What are the economic functions of
government, and what should they be? How should the government finance the
services that it provides? What kinds of government programs should confront the
problems of poverty, unemployment, and pollution? What problems does government
involvement create?
Urban and regional studies the spatial arrangement of economic activity. Why do we have cities? Why are
economics manufacturing firms locating farther and farther from the center of urban areas?
What Macroeconomics Studies?

1. What determines a nation’s long-run economic growth?

2. What causes a nation’s economic activity to fluctuate?

3. What causes unemployment?

4. What causes prices to rise?

5. How does being a part of a global economic system affect

nations’ economies?

6. Can government policies be used to improve economic

performance?
Macroeconomic Policies

1. A nation’s economic performance depends on:

natural and human resources;
capital stock;
technology
economic choices made by citizens;
macroeconomic policies of the government

2. Macroeconomic policies:
(a) Fiscal policy: government spending and taxation at different
government levels.

(b) Monetary policy: the central bank’s control of short-term interest

rates and the money supply.
What Macroeconomists Do?

1. Macroeconomic forecasting

2. Macroeconomic analysis

3. Macroeconomic research

4. Data development