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Micro-econ Introduction lectureScarce Resources in economics:
Land
Labour
Capital (physical and monetary)
Entrepreneurship
Humans make choices on how to best allocate these scare resources asking questions such
as for who we produce for, how we produce and what we produce. This also involves trade-
offs that are impacted by incentives such as profit. There are two main objectives in
economics, the first one is efficiency and the second one is bold equity or fairness.
Macroeconomics: a study of the economy as a whole looking at aggregate components such
as economy wide demand and supply for a product.
Microeconomics: refers to the study of individuals and individual markets/industries.
ECONOMIC SYSTEMS:
• Centrally planned: government makes all economic decisions
• Free market: government makes no economic decisions
Markets tend to do better than alternatives at allocating resources:
… Better information
… Greater flexibility
… Decentralisation of power
The essence of science is the scientific method. Economics uses this method: Theoretical
Economics makes predictions. Empirical economics tests predictions.
Economic theories are often abstract due to extreme assumptions. This is critical in assisting
us develop an understanding of the world. Economists are not alone: all scientists make
assumptions about the world. A theory is good if: it can explain the evidence/it makes
predictions that can be tested.
Economists make two types of statements, positive statements describe causes and effects
they describe how the world is. Normative statements embody value judgements
they describe how the world ought to be.
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