• Lecture Note on Introduction to Economics By Fasil E.
INTRODUCTION TO ECONOMICS
(ECON.101)
By: Fasil E.
Out Line of the Course
Introduction (Chapter 1 and 2)
Microeconomics ( Chapter 3, 4 and 5)
Macroeconomics (Chapter 6)
• Lecture Note on Introduction to Economics By Fasil E.
CHAPTER ONE
1. Meaning, Scope, goals of Economics
Questions to consider:
What is the subject matters of
Economics?
Why we study Economics?
What are objectives of economics are?
What is opportunity cost?
• Lecture Note on Introduction to Economics By Fasil E.
1.1 What is Economics?
Definitions of Economics
Many scholars defined Economics differently at
different periods of time. That means, the definition
of Economics changes with the passage of time.
This implies that Economics is unfinished Science.
And many scholars therefore, defined Economics as
unfinished science.
• Lecture Note on Introduction to Economics By Fasil E.
Meaning Cont…
A. Adam Smith Definition of Economics (1776)
Adam Smith is a father of Economics and he discovered
and defined Economics for the first time.
He defined Economics in his book of Wealth of nation
as Economics is a science which deals with how one
country becomes rich while others becomes poor. That
means, Economics studies the richness and the
poorness of a nation. Or Economics deals the
determinants of Economic Growth.
• Lecture Note on Introduction to Economics By Fasil E.
Meaning Cont…
B. Alfred Marshall Definition of Economics
He tried to improve the definition of Economics which
was given by Adam Smith. He defined Economics as
the study of mankind in the ordinary business life.
Which means, Economics study how man earns
money and spends that money. This definition is too
narrow and Economics is more than this.
• Lecture Note on Introduction to Economics By Tewolde G..
Meaning Cont…
C. Robinson Definition of Economics
She defined Economics as a science of Scarcity/ choice. In
this world, there are two unbalancing forces, human wants
(Demand) and resources (Supply).
Human wants > Resources, for Economics goods
Human wants < Resources, for free goods
If human wants > resources at zero prices, there is a
scarcity
• Lecture Note on Introduction to Economics By Tewolde G..
Meaning Cont…
Thus, scarcity is the imbalance b/n wants and resources (W>R)
If human wants (DD) > resources (SS) at positive price, there is a
shortage.
So, there is a difference between scarcity and shortage. That
means, scarcity is a universal phenomenon in a sense that
whether a nation is poor or rich , it faces the problems of scarcity.
But, we can a void shortages but not scarcity. Therefore,
Economics is a science which deals with the imbalance between
wants and resources.
• Lecture Note on Introduction to Economics By Fasil E.
Meaning Cont…
D. Modern Definition of Economics
Scarcity implies choices and choice implies
opportunity cost.
Economics is a science which studies the
allocation of limited resources among alternative
uses (choice) in such a way that unlimited
human wants are satisfied.
• Lecture Note on Introduction to Economics By Fasil E.
1.2 Economic Problems
Scarcity requires all societies to answer the
following questions:
What is to be produced?
How is to be produced?
For whom will it be produced?
These are what we call Economic Problems.
• Lecture Note on Introduction to Economics By Fasil E.
The Economic Problems
Unlimited Limited
Needs & Resources
Wants of
human
Scarcity
Choices
• Opportunity cost
WHAT to HOW FOR WHOM
produce to to produce
1.3 Why We Study
Economics?
Wisely allocating scarce resources to satisfy
the unlimited human wants
Efficiently managing your business
Better understand the economic problems of
societies, such as rising unemployment,
inflation, budget deficit, external debt, poverty,
food security, rampant corruption, etc;
Formulate different policies to solve social,
economic and political
• Lecture Note on Introduction to Economics By Fasil E.
1.4 Scope of Economics
There are two major divisions of Economics:
namely microeconomics and macroeconomics
(depending on its coverage)
A. Microeconomics: also called Price theory
B. Macroeconomics (forest)
A. Micro economics
also called Pricing theory
Examines /study about the specific parts of
economy. i.e here we talk about firms,
household, price of specific commodity
,examine the revenue and expenditure of
particular firms…studies
About the behavior of consumer in maximizing
their satisfaction
How business makes decision to maximize profit
How price of product and factors of production
are determined in each market.
• Lecture Note on Introduction to Economics By Fasil E.
B. Macro Economics
Deals about the functioning of the
economy as hole
Mainly concerned with the over all
performance of the economy as whole
or talks about
Export and import
Unemployment
Inflation
Economic growth and development
Investment and saving
• Lecture Note on Introduction to Economics By Fasil E.
1.5 Methods of Economics
Depending on how argument is made economics can be
A. Normative Economics (Policies choice))
B. Positive Economics ( Explanation and Predictions)
A.Normative Economics
Is judgment about whether a situation is desirable or
undesirable
Deals about how economic problems should be solved
Answer the question of “what ought to be “
Is about judgment about what the economy should look
like and recommendation to solve the problem Example
• Lecture Note on Introduction to Economics By Fasil E.
B. Positive economics
Parts of economics which concerned about
describing and analyzing the economy i.e
deals with what the economy is actually like or
the statement must capable of intervention
Try to explain how the economy works
Answer the question what is ,what was or what
will be
Provides a good /enough explanation of
economic phenomenon
What is economic impact of raising taxes
What is the Economic impact of 20%
•unemployment
Lecture Note on Introduction rate in nation?
to Economics By Fasil E.
Example
The African economy should grow at 10%. N
What is the economic impact of raising
taxes? P
The unemployment rate in nation A is 15%. P
The inflation rate in Ethiopia is not greater
than three percent. (positive aspect)
- The inflation rate in Ethiopia should not be
greater than three percent. (Normative aspect)
• Lecture Note on Introduction to Economics By Fasil E.
1.6 Goals of Economics
Economic growth: produce more and better
services, or, more simply, develop a
higher standard of living
Full Employment: Provide suitable jobs far
all citizens who are willing and able to work
Economic efficiency: Achieve the maximum
fulfillment of wants using the available
productive resources
Goal Cont…
price level stability Avoid large upswings and
downswings in the general price level that is
avoid inflation and deflation
Trade balance seek a reasonable overall
balance with the rest of the word in international
trade and financial transactions.
Equity : Ensure that no group of citizens faces
stark absolute poverty while others enjoy luxury.
