Some Important Topics from Samuelsson & Nordhaus Chapter 01, Economics. P1

 

 

Definition of Economics: Economics is the study of how societies use scarce resources to produce valuable goods and services and distribute them among different individuals—Samuelsson

Adam Smith defined Economics as an enquiry in to the nature and causes of the generation of the wealth of a nation.

 

The twin terms of Economy: Economy is all about using the resources and create goods and services out of it. Resources are limited, so using the resources properly is must for any country or individual. From this the two main concept of economy arrived, Scarcity and Efficiency.

 Scarcity occurs when a certain recourse has shortage than its demand [which is eventually going to happen at the end] and efficiency is the way how we use that resource and produced the maximum product or services out of it.  

 Economic efficiency requires that an economy produce the highest combination of quantity and quality of goods and services given its technology and scarce resources. An economy is producing efficiently when no individual’s economic welfare can be improved unless someone else is made worse off.

Micro-Economics and macro-economics difference and definition

Micro-Economics and macro-economics difference and definition

 

Introduced by Adam Smith in 1776 through his book Wealth of Nations. Smith considered how individual prices are set, studied the determination of prices of land, labor, and capital, and inquired into the strengths and weaknesses of the market mechanism.

 

Simplicity of its structure and close with the real world is its strength.

 

Studies demand and Supply and with the way they interact in various market. Applied welfare economics is a fluctuation of Microeconomics.

 

Weakness of microeconomics is that it can’t study many economic policies and problems. For example, fiscal policy, monetary policy, inflation, unemployment  

 

 

Modern form of Macroeconomics was introduced by John Maynard Keynes’s revolutionary General Theory of Employment, Interest and Money in 1936.

 

Macroeconomics is concerned with the overall performance of the economy.

 

 

Macroeconomics examines a wide variety of areas, such as how total investment and consumption are determined, how central banks manage money and interest rates, what causes international financial crises, and why some nations grow rapidly while others stagnate

 

It can deal with the whole economy of a country

 

What does Economy Actually do:
 

● Economics explores the behavior of the financial markets, including interest rates, exchange rates, and stock prices.

 ● The subject examines the reasons why some people or countries have high incomes while others are poor; it goes on to analyze ways that poverty can be reduced without harming the economy.

 ● It studies business cycles—the fluctuations in credit, unemployment, and inflation—along with policies to moderate them.

 ● Economics studies international trade and finance and the impacts of globalization, and it particularly examines the thorny issues involved in opening up borders to free trade.

 ● It asks how government policies can be used to pursue important goals such as rapid economic growth, efficient use of resources, full employment, price stability, and a fair distribution of income.

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