HSS646 Principles of Economics

2022-01-11

Economic agents

1. Buyers
2. Sellers

• When a begger buys chai, he is a buyer.
• Students are buyers.

Hence even if not “earning”, you are still part of the economic framework.

1. Government and firms
2. Industries

Subsidies are given by the government, becoming a player in economics.

Economic Choices

1. Trade off - Choice involves tradeoff - deciding to spend more on one thing leaves less to spend on something else.
2. Incentives - In making choices, individuals respond to incentives
3. Exchange - Exchanging with others, our range of choices increase
4. Information - Making intelligent choices requires use of information.
5. Distribution - Choices that we have determine distribution of wealth and income in society

Branches of Economics

• Macroeconomics -
• Microeconomics -

Scientific understanding: Necessary for policy

• Variables: Price, wages, rates, quantities. Connection between variables
• Correlation and Causation:
  • Aim is to find causations, not only correlations

Scarcity

Scarcity - limited quantities for unlimited wants

Goods and Services

• Goods: Commodities/physical objects
• Services: activites performed

Factors of Production

4 resources need

• Land - Tradeoffs exist
  • Fertile land for farming
  • Production in or on land
• Labour
  • Working and willing to work
  • Main worker, marginal worker
  • Skilled, semi-skilled, unskilled
  • Workforce: Actively working
• Capital
  • Physical Capital
  • Human Capital
    • Education
    • Training/exprience
    • Health
• Entrepreneurship
  • People who combine above to start business

Components of an Economy

• Productions
• Consumption
• Distribution
• Exchange

Circular Flow diagram