Class : AY Yoss Naga Saputra / 125110002 Sunarto Dharmawan / 125110003 Fenny Fong / 125110007 Gracia Amanda / 125110009

Social Science

Studies of Choices

ECONOMICS?
The Use of Scarce Resources

Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.

1.

The questions economics asks and attempts to answer fall into two categories. Positive economics economic reality that can be supported or rejected by reference to the facts. They might be right or wrong. It is used to understand the behavior and operation of economic systems.

Positive Economics

Descriptive economics

Economic theory

Empirical economics

2.

Normative economics reflects opinions and values, judging whether the outcomes are good or bad. It describes what exists and how it works.

Simply speaking, positive economics deal with what is while normative economics is concerned with what should be. Economics Not so normative as arts nor so positive as science

Scope of Economics

Microeconomics studies behaviors of individual decision makers in a particular market and their interrelationships. Microeconomics examines the factors of individual economic choices and how those choices are coordinated by markets. Ex. : How price and quantity supplied for a certain product interact, determine each other and finally come to equilibrium.

Macroeconomics is the overall behavior and performance of an entire economy. What happens in an economy is the outcome of millions of individual decisions, and macroeconomics puts all the small pieces that are subjects of microeconomics together to focus on the big picture, as at a national or a global level.

Examples of Microeconomic and Macroeconomic Concerns Production Prices Income Employment

Microeconomics

Output in Individual Industries and Businesses

National Production / Output

Price of Individual Goods and Services

Aggregate Price Level

Distribution Employment by of Income Individual and Wealth Businesses & Industries

National Income Employment and Unemployment in the Economy

Macroeconomics

Rational Self-Interest Opportunity Cost Marginal Analysis & Sunk Cost Efficient Market

Rational self-interest means that in a condition, individuals try to minimize the expected cost for a benefit or maximize the expected benefit with a cost. In economics, those rational choices realized by tradeoffs.

Tradeoff is an exchange giving up one thing to get something else. This is an economic way of thinking because we choose among the available alternatives.

What

How

For Whom

The highest valued alternative of the activity that we give up to get the other thing. These costs are noncash or implicit and sometimes cant be measured by money. Opportunity cost is subjective. Only the chooser can determine the most attractive alternative for itself from its special point of view.

Marginal cost is the cost of an increase in an activity (additional cost). The benefit that arises from an increase in the activity is called marginal benefit. By evaluating marginal benefits and marginal costs and choosing only the action that bring greater benefit than cost, we use our scarce resources in the way that makes us as well off as possible.

Decreasing Marginal Benefit

In marginal analysis, one of the concepts that cannot be missed out is sunk cost. Sunk costs are costs that cannot be avoided for any nonzero units of products and that do not change regardless of the quantity of production. As opposed to sunk cost, marginal cost is the cost that is relevant to the quantity produced and that do not occur with a zero production.

Efficient market implies unequal costs or profits associated with alternatives are eliminated as people respond to incentives (e.g. profit, risk, time savings, price, money, etc.) Profit opportunities are rare because, at any one time, there are many people searching for them.

Efficiency

Grow

Economic Policy

Equity

Stability

Variable A measure that can change from time to time.

Model Formal statement of a theory. Models are descriptions of the relationship between two or more variables.

Theory General statement of cause and effect, action and reaction.

Ceteris Paribus
Part of the process of abstraction used to focus only on key point. Post Hoc Fallacy Falsely assuming a first event caused second event. Fallacy of Composition

What is good for one is not necessarily good for all.

Parkin, Michael and friends. 2007. Economics: 5th Edition. Australia. Publisher : Pearson Education Australia. Case, Karl; Fair, Ray. 2002. Principles of Economics: 6th Edition. Publisher : Prentice Hall Business Publishing. Purpose And Scope Of Economics. Cited: August 29, 2011. Available from: http://www.oldandsold.com/articles10/economics1.shtml Scope of Economics. Last update: 2011. Cited: August 29, 2011. Available from: http://economicsconcepts.com/scope_of_economics. htm