Overview of Economics

INTRODUCTION TO ECONOMICS

By:

Agudo, Charmaine

Arevalo, Mark Ronnie

Alcantara, Julius Nino

Arre, John Michael

Definition of Economics A social science that studies how individuals,

governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants. Economics can generally be broken down into: macroeconomics, which concentrates on the behavior of the aggregate economy; and microeconomics, which focuses on individual consumers.

Economics is often referred to as "the dismal science." the science that deals with the production, distribution,

and consumption of goods and services, or the material welfare of humankind.

the social science concerned with the production and consumption of goods and services and the analysis of the commercial activities of a society

Approaches to Economics

There are various approaches to studying economics, which deals with how people make choices about scarce resources that have alternative uses. For instance, there is the micro approach to economics, which looks at individual units in the economy, and there is the macro approach, which looks at the overall economy. There is also the normative approach to economics, as opposed to a positive approach.

Normative Approach

A normative approach to economics looks at "what ought to be," as the economist Milton Friedman put it, when it comes to decision-making relating to economics. Rather than just objectively studying an economic situation and coming up with solutions, normative economics involves coming up with a solution that caters to a certain perspective. It has a moral or ethical component to it, rather than merely a factual orientation, which introduces a subjective orientation to a study.

Positive Approach

In contrast, the positive approach to economics is to look at facts objectively and come up with input. In analyzing a situation, positive economics does not involve imposing value judgments on others. Rather, this approach studies things as they are, rather than as they ought to be. Economists in general favor a positive approach to economics, so as to preserve the integrity of economic analysis and decision-making. A positive approach gives the field more credibility.

Wages

An economist with a normative approach to setting wages might take the position that everybody's work and time should be valued equally, which means people should be paid the same wage for each hour of work. However, an economist with a positive approach might well point out that everybody's training and skills are different, which justifies the payment of different levels of wages. Only by paying higher wages to jobs that require such training will employers be able to attract qualified people for these jobs.

Employment

In studying employment issues, a common area of economic study, an economist with a normative approach might advocate for particular positions. For instance, an economist could find unemployment in the U.S. automobile industry rises when people buy cars produced overseas. An economist with a normative approach could then go on to advocate that people should not buy foreign cars in order to help the domestic automobile industry. On the other hand, an economist with a positive approach would just present the findings without taking a position on the issues.

Divisions of Economics

Economics is the social science that is concerned with employing society's resources in such a way as to achieve the maximum level of satisfaction of societal needs and wants. Five major divisions in the discipline provide a conceptual framework for studying economic processes and institutions.

The five major divisions of economics are:

consumption, distribution, exchange, production and public finance.

Consumption

Consumption is the branch of economics that is concerned with spending by households and firms on goods and services. Consumer spending is significant; it makes up two-thirds of the U.S. gross domestic product.

Distribution

Distribution examines the allocation of the national income among various inputs, or factors of production. Distribution also can refer to the distribution of income among individuals and households.

Exchange

Exchange refers to the buying and selling of goods and services, either through barter or the medium of money. In most economies, exchange occurs in a market, the medium that brings together consumers and producers.

Production

Production involves combining inputs or factors, such as land, labor and capital, to produce goods and services. Economists use a production function to study the relationship between inputs and the goods and services produced.

Public Finance

Governments are active participants in the economy. Public finance is the division of economics that studies taxation and expenditure by governments and the economic effects.

Subjects Related to Economics

The social sciences include economics, political science, anthropology, criminal justice, psychology and geography. Economics is the study of how to allocate scarce resources among competing desires. It is interconnected with these disciplines. They all focus on understanding patterns of human behavior. In certain instances, economics is also related to the natural sciences, which seek to understand the physical world, and humanities, which attempt to interpret the meaning of life.

Political Science

Political science examines the theory and practice of politics, political behavior and the description and analysis of political systems. The main subfields of this discipline include American politics, political theory, comparative politics, public policy and international relations. Economics is closely related to these fields. An understanding of economic concepts is important to political scientists who study the structure and function of governments and how these nations relate to each other in the international system. In fact, international political economy is a subfield of the study of international relations.

History

Historians study past events. Their main goal is to explain and interpret the causes and effects of these events. Some approaches to the study of history include researching economic history, military history, social history, cultural history and diplomatic history. Economic historians analyze the development of entire economies. They study topics such as imperialism, class conflict, labor, the economic self-interest of individuals and industrial practices. These subjects are also studied by economists.

Human Geography

Human geography combines cultural geography with economics to explore the relationship between humans and their natural environments. They explore the broad social patterns that shape societies, both in the past and in the present. Human geographers' main focus is to study the impact of the development and evolution of societies on their physical environment. They also investigate a variety of human endeavors, such as villages, cities and trade. Similar to economists, they are concerned with topics that have an underlying economic aspect, such as urbanization and tourism.

Psychology

Psychologists study the mental processes and behaviors of individuals. They examine how people relate to each other and to their environment. Some topics psychologists study include perception, cognition, motivation, personality and behavior. Their knowledge is applied to areas of human activity including education and employment. Knowledge of psychological concepts such as motivation and behavior can help economists understand how people make economic decisions.

Mathematics

An understanding of algebra, calculus and statistics is essential to the study of economics. Economists use quantitative research methods to study economic problems such as supply and demand, economic decision making, scarcity and government intervention. These variables can be numerically quantified and statistically analyzed. This information can be used to explain current economic problems and predict future conditions.

Well-known Economists

Economists have actually been around for hundreds of years, creating new financial systems and coming up with new and exciting philosophies that have helped shape the economies for their countries. This article takes a look at ten famous economists and their contributions. Although the idea of the economist might seem like a new one, economists have actually been around for hundreds of years, creating new financial systems and coming up with new and exciting philosophies that have helped shape the economies for their countries, as well as others.

Adam Smith

Adam Smith (baptised 16 June 1723 – died 17 July 1790 ) was a Scottish moral philosopher and a pioneer of political economics. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations. The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. Smith is widely cited as the father of modern economics and capitalism.

David Ricardo

David Ricardo (19 April 1772 – 11 September 1823) was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator, who amassed a considerable personal fortune. Perhaps his most important contribution was the law of comparative advantage, a fundamental argument in favour of free trade among countries and of specialisation among individuals. Ricardo argued that there is mutual benefit from trade (or exchange) even if one party (e.g. resource-rich country, highly-skilled artisan) is more productive in every possible area than its trading counterpart (e.g. resource-poor country, unskilled laborer), as long as each concentrates on the activities where it has a relative productivity advantage.

Carl Menger

Carl Menger (February 28, 1840 – February 26, 1921) was the founder of the Austrian School of economics, famous for contributing to the development of the theory of marginal utility, which contested the cost-of-production theories of value, developed by the classical economists such as Adam Smith and David Ricardo.

John Maynard Keynes

John Maynard Keynes, 1st Baron Keynes, CB (; 5 June 1883 – 21 April 1946) was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments. He greatly refined earlier work on the causes of business cycles, and advocated the use of fiscal and monetary measures to mitigate the adverse effects of economic recessions and depressions. His ideas are the basis for the school of thought known as Keynesian economics, as well as its various offshoots.

Karl Marx

Karl Heinrich Marx (May 5, 1818 – March 14, 1883) was a German philosopher, political economist, historian, political theorist, sociologist, communist, and revolutionary, whose ideas played a significant role in the development of modern communism and socialism. Marx summarized his approach in the first line of chapter one of The Communist Manifesto, published in 1848: "The history of all hitherto existing society is the history of class struggles."

Irving Fisher

Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, health campaigner, and eugenicist, and one of the earliest American neoclassical economists, though he later rejected the underlying theory of general equilibrium, and his later work on debt deflation is instead considered in the Post-Keynesian school. Although he was perhaps the first celebrity economist, his reputation during his lifetime was irreparably harmed by his sanguine attitude immediately prior to the crash of 1929, and his theory of debt deflation was ignored in favor of the work of John Maynard Keynes. His reputation has since recovered in neoclassical economics since his work was popularized in the late 1950s , and more widely due to an increased interest in debt deflation in the Late-2000s recession.

Richard Cantillon

Richard Cantillon (1680s – May 1734) was an Irish economist and author of Essai Sur La Nature Du Commerce En Général (Essay on the Nature of Trade in General), a book considered by William Stanley Jevons to be the "cradle of political economy". Although little information exists on Cantillon's life, it is known that he became a successful banker and merchant at an early age. His success was largely derived from the political and business connections he was able to acquire through his family and through an early employer, James Brydges. During the late 1710s and early 1720s, Cantillon speculated in, and later helped fund, John Law's Mississippi Company, from which he acquired great wealth. His success, however, came at a cost to his debtors, who pursued him with lawsuits, criminal charges, and even murder plots until his death in 1734.

James Tobin

James Tobin (March 5, 1918 – March 11, 2002) was an American economist who, in his lifetime, served on the Council of Economic Advisors and the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He developed the ideas of Keynesian economics, and advocated government intervention to stabilize output and avoid recessions. His academic work included pioneering contributions to the study of investment, monetary and fiscal policy and financial markets. He also proposed an econometric model for censored endogenous variables, the well known "Tobit model". Tobin received the Nobel Memorial Prize in Economic Sciences in 1981.

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