Assignment 1 Introduction to Economics

1.Defines Economics and create your own definition as it applies to your

majors.
= Economics is the study of scarcity and how it affects the use of
resources, the production of goods and services, the growth of
production and well-being over time, and many other important and
complicated issues that affect society. In addition, economics is a social
science that studies how people select between various options. It’s
social since it involves people and their actions. It is a science because,
to the greatest extent feasible, it investigates options using a scientific
method.

2.Describe scarcity and how it relates to man's economic choices.

= One of the defining features of economics is scarcity, which deals with
how people satisfy unlimited wants and needs with limited resources.
Scarcity impacts the monetary value that people place on goods and
services, as well as how governments and private enterprises allocate
resources.

3.Explain the relationship between economic systems and economic

resources.
= Economic systems regulate the factors of production, including land,
capital, labor, and physical resources. On the other hand, economic
resources are the different factors of production used to produce all
goods and services in the economy. Hence, the relationship between
economic systems and economic resources is fundamental to
understanding how societies organize their economic activities and
allocate their resources to meet their needs and wants.
 Assignment 1 Introduction to Economics

4.Identify some myths of economics.

Myth #1: Deficits are the cause of inflation; deficits have nothing to do with inflation.
In recent decades we always have had federal deficits. The invariable response of the
party out of power, whichever it may be, is to denounce those deficits as being the
cause of our chronic inflation. And the invariable response of whatever party is in
power has been to claim that deficits have nothing to do with inflation. Both
opposing statements are myths.

Myth #2: Deficits do not have a crowding-out effect on private investment.

In recent years there has been an understandable worry over the low rate of saving
and investment. One worry is that the enormous federal deficits will divert savings to
unproductive government spending and thereby crowd out productive investment,
generating ever, greater long-run problems in advancing or even maintaining the
living standards of the public.

Myth #3: Tax increases are a cure for deficits.

Those people who are properly worried about the deficit unfortunately offer an
unacceptable solution: increasing taxes. Curing deficits by raising taxes is equivalent
to curing someone’s bronchitis by shooting him. The “cure” is far worse than the
disease.

Myth #4: Economists, using charts or high speed computer models, can accurately
forecast the future.
The problem of forecasting interest rates illustrates the pitfalls of forecasting in
general. People are contrary cusses whose behavior, thank goodness, cannot be
forecast precisely in advance. Their values, ideas, expectations, and knowledge
change all the time, and change in an unpredictable manner.

Myth #5: There is a tradeoff between unemployment and inflation.

Every time someone calls for the government to abandon its inflationary policies,
Establishment economists and politicians warn that the result can only be severe
unemployment. We are trapped, therefore, into playing off inflation against high
unemployment, and become persuaded that we must therefore accept some of both.
 Assignment 1 Introduction to Economics

5.Describe the different basic economic terms.

• Supply - The amount of a good or service that producers are willing and able
to offer for sale at a given price.

• Demand - The quantity of a good or service that consumers are willing and
able to buy at a given price.

• Price - The amount of money that must be paid to purchase a good or

service.

• Market - A place or mechanism that brings buyers and sellers together to

exchange goods or services.

• Gross National Product (GNP) - a measure used to assess the economic

performance of a country. It represents the total value of all finished goods
and services produced by a country’s residents, both domestically and
abroad, within a specific time frame, typically a year.

• Monetary policy - The use of a central bank’s control over the money supply
and interest rates to influence the economy.

• Subsidy - A payment or other incentive given by the government to support

a particular industry or activity.

•Purchasing Power Parity - an economic theory that suggests exchange rates

between two countries’ currencies should adjust to equalize the price of a
basket of goods and services in both countries. In simpler terms, it implies
that identical goods in different countries should have the same price when
expressed in a common currency.
 Assignment 1 Introduction to Economics

6. Apply the importance of economics as it relates to the different

economic issues faced in our society.
= Economics is fundamentally concerned with how humans make
decisions in the face of scarcity. Individual, family, commercial, or social
decisions can all fall under this category. If you look around, you will
notice that scarcity is a fact of life. Scarcity occurs when human desires
for products, services, and resources exceed what is available.
Resources is necessary to generate the goods and services we desire,
yet they are in finite supply.

7.Explain the economic problem of scarce resources and unlimited

wants.
= Economics is not only concerned with needs and wants, but also how
best to satisfy these unlimited needs and wants. To this end, we have to
consider how these goods and services are able to satisfy our needs and
wants. What we find is that the resources at our disposal to produce the
goods and services we need and want are limited. There are simply not
have enough resources to produce all the things we need and want.
 Assignment 1 Introduction to Economics

8.Describe the forces that shape the economic choices.

= All choices mean that one alternative is selected over another.
Selecting among alternatives involves three ideas central to economics:
scarcity, choice, and opportunity cost.

Scarcity - Our resources are limited. At any one time, we have only so
much land, so many factories, so much oil, so many people. But our
wants, our desires for the things that we can produce with those
resources, are unlimited. Our unlimited wants are continually colliding
with the limits of our resources, forcing us to pick some activities and to
reject others. Scarcity is the condition of having to choose among
alternatives. A scarce good is one for which the choice of one
alternative use of the good requires that another be given up.

Opportunity Cost -It is within the context of scarcity that economists

define what is perhaps the most important concept in all of economics,
the concept of opportunity cost. Opportunity cost is the value of the
best alternative forgone in making any choice. The essential thing to see
in the concept of opportunity cost is found in the name of the concept.
Opportunity cost is the value of the best opportunity forgone in a
particular choice. It is not simply the amount spent on that choice.

The concepts of scarcity, choice, and opportunity cost are at the heart
of economics. A good is scarce if the choice of one alternative requires
that another be given up. The existence of alternative uses forces us to
make choices. The opportunity cost of any choice is the value of the
best alternative forgone in making it.
 Assignment 1 Introduction to Economics

9.Explain the relationship between economic theory and economic

reality.
= Economic theory and economic reality affect each other. On the one
hand, economic theory can have practical consequences, that is,
contribute to changes in economic policy and economic behavior in
general. On the other hand, changes in economic reality can and do find
reflection in economic theory. Although the function of economic
theory is to explain and predict the working of the economy, economic
theory may fail in both respects, for at least three reasons: it may be
flawed; it may be unable to cope with real-life complexities due to its
inherent limitations, stemming from the use of a limited number of
variables and assumptions; and being concerned with regularities, it
does not have the capability to foresee unexpected events that crucially
affect future developments.

10.Identify some pitfalls of economic analysis.

= There are two “pitfalls” that should be avoided when conducting
economic analysis: the fallacy of composition and the false‐cause
fallacy.
• The fallacy of composition is the belief that if one individual or firm
benefits from some action, all individuals or all firms will benefit from
the same action. While this may in fact be the case, it is not necessarily
so.
•The false‐cause fallacy often arises in economic analysis of two
correlated actions or events. When one observes that two actions or
events seem to be correlated, it is often tempting to conclude that one
event has caused the other. But by doing so, one may be committing the
false‐cause fallacy, which is the simple fact that correlation does not
imply causation.
 Assignment 1 Introduction to Economics

11.Describe several reasons to study economics.

= To study economics not only gain the skills needed to understand complex
markets but come away with strong analytical and problem-solving skills, as
well as the business acumen necessary to succeed in the professional world.
Here’s several reasons to study economics.

1. You’ll Expand Your Vocabulary

Whether it’s scarcity, opportunity cost, or equilibrium, an economics course
will give fluency in fundamental terms needed to understand how markets
work. Studying economic terms will give a better understanding of market
dynamics as a whole and how they apply to the organization.

2. You’ll Put New Terms into Practice

Economics isn’t just learning a set of technical words, it’s actually using them
to develop a viable business strategy. Once you understand the terms, it’s
easier to use theories and frameworks, to assess situations and make a variety
of economic decisions for your organization.

3. You’ll Understand Your Own Spending Habits

Economics will teach you about how your organization and its market
behaves, but also offer insights into your own spending habits and values.

4. You’ll Master the Nuances of the Field

Many people think of economics as just curves, models, and relationships, but
in reality, economics is much more nuanced. Much of economic theory is
based on assumptions of how people behave rationally, but it’s important to
know what to do when those assumptions fail. Learning about cognitive biases
that affect our economic decision-making processes arms you with the tools
to predict human behavior in the real world, whether people act rationally or
irrationally.
 Assignment 1 Introduction to Economics

5. You’ll Learn How to Leverage Economic Tools

Learning economic theory is one thing, but developing the tools to make
business decisions is another. Economics will teach you the basics and
also give you concrete tools for analysis. This tool will allow you to get at
the surprisingly complicated feature versus price tradeoffs that
consumers make every day.

6. You’ll Be Better-Prepared for Graduate School

In addition to helping you make better decisions in both your personal
and professional life, learning economics is also beneficial if you’re
considering a graduate business degree. Studying economics can equip
you with the problem-solving skills and technical knowledge needed to
prepare for an MBA.

7. You’ll Improve Your Career Prospects

An education in economics can improve your employability in a variety
of industries. According to the World Economic Forum’s Future of Jobs
Report, analytical thinking and complex problem-solving skills top the
list of transferable skills that employers will find increasingly important
by 2025, both of which can be gained by studying economics.