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Introduction to Economics
Economics is all
about humanity’s
struggle to achieve
happiness in a world
full of constraints
Needs and wants?
• NEEDS – “stuff” we must have to survive generally : food, shelter, clothing

• WANTS – “ Stuff” we would really like to have ( fancy food , shelter , clothing. ig, screen
TVs, jewelry, conveniences . Also knows as LUXURIES

• Stuffs?-----------Good s and Services

Goods – tangible ( you can touch it) products we can buy

Services – intangible -- work that is performed for others

Tradeoffs and Choice
• Economics is all about how groups and individuals make choices
• Economics is all about how groups and individuals make choices
• why they choose the things that they do.
• To keep things simple, our explanation of individual choice behavior focuses on consumer
behaviour, because most of the choices people make on a day-to-day basis involve which
goods and services to consume.
• But, of course, real-life choices often encompass a lot of other things, some of them very
weighty.
• For example, people must make choices about long-term things like whether to get a job or
continue in education, as well as things of the greatest possible seriousness like whether to
continue negotiating or declare war
Trade OFFs
• What could you have done instead of come to school
today ?
Two Streams

Microeconomics Macroeconomics
• Microeconomics focuses on individual people and • Macroeconomics looks at the economy as an
individual businesses. organic whole, concentrating on economy-
• Microeconomics explains how individuals behave when wide factors such as interest rates, inflation
faced with decisions about where to spend their money and unemployment.
or how to invest their savings,
• Macroeconomics also encompasses the study
• and how profit-maximising firms behave both of economic growth and how governments
individually and when they’re competing against each
use monetary and fiscal policy to try to
other in markets.
moderate the harm caused by recessions.
Defining Economics -
• According to Mydral

“Economics is the only term regarding the precise definition of which the economists
need not be concerned “

So.. It is said that its needless to define economics.

…..however…..
• Early definitions of economics was all about “wealth”

• Adam Smith – “ An enquiry into the nature and causes of wealth of nations “

• Early economists called this the science of wealth

• J.E Cairnes in this book also mentioned , economics deals with phenomenon of wealth

• F A walker says body of knowledge which relates to wealth

• ******** gradually the exaggerated emphasis on WEALTH has been

removed*********
• Scaffle , Germany

• Droz ,France

• Placed the role of man higher than the role of wealth

• Wealth is only a means to an end, the end being human welfare.

• Alfred Marshall – economics is on the one side a study of wealth and on the other and
more important side, a study of man
Marshallian Definition
• Political economy or economics is a study of mankind in the ordinary business of life; it
examines that part of individual and social action which is most closely connected with
the attainment and with the use of material requisites of well being .

• Material welfare – Beveridge, Cannan ,Pigou

• According to the above economists, the aim of economics is to study human activities
which are conducive to human welfare in its material aspect
4 points from Marshall’s
definition
1. Economics does not regard wealth as the be- all and end- all of economic activities.
Wealth is sought for promoting human welfare.

2. Economics is not concerned with “ economic man” rather deals with ordinary men
and women.

3. Economics is social science. It studies people living in society influencing other people
and being influenced by others.

4. Economics studies only “ material requisites of wellbeing”

Criticism by Robbins
• Material welfare only? – in the actual study of economics principles both “material and
immaterial” are taken into account

• Classificatory

• Restricted the scope of economics

Lionel Robins
• Nature and significance of economic science

• Economics is concerned with both material and immaterial things provided they have
value

• Welfare?

• What if there is no welfare but yet a price ?

Economics is the science which studies human behavior as a relationship

between ends and scarce means which have alternative uses
Three fundamental propositions which
constitute the basis of the structure of
economic science
1. Ends refers to WANTS.

2. Although wants are unlimited, means to satisfy them are extremely limited. Scarcity
is used here in a relative sense ; in relation to requirements.

3. scare means are capable of alternative uses.

Robbins demolished the old structure of economics and created a new one based on 2
foundations --- multiplicity of wants and scarcity of means
Modern definition
• J M Keynes

• Economics studies income and employment in a community are determined

• Economics is the study of the administration of scare resources and of the determinants
of income and employment.

• Benhams words “ Economics is a study of the factors affecting the size distribution and
stability of a country’s national income
Paul Samuelson
• Economics is a study of how men and society “choose” with or without the use of
money , to employ scare productive uses resource which could have alternative uses to
produce various commodities over times and distribute them for consumption now
and in the future among various people and groups in the society.
Economic questions
• Society (we) must figure out

• what to produce (make)

• how much to produce ( quantity)

• how to produce it ( manufacture)

• for whom to produce ( who gets what)

• who gets to make these decision.

Why do we need economics in
public administration ?
• How the government fights recessions and unemployment using monetary and fiscal policy.

• How and why international trade is good for us.

• Why poorly designed property rights are responsible for environmental problems such as global
warming, pollution, and species extinctions.

• How profits guide businesses to produce the goods and services we take for granted.

• Why competitive firms are almost always better for society than monopolies.

• How the Bangladesh Bank controls the money supply, interest rates and inflation all at the same
time.

• Why government policies such as price controls and subsidies typically cause much more harm than
good.

• How the simple supply and demand model can explain the prices of everything from comic books to