Economic way of thinking

IntroductionIn this topic we will discuss economics, the economic way of thinking, macro & micro economics. How it affects the markets and what is the role of government. One purpose of this topic is to describe the special approach in considerable detail---to develop in precise terms the commonly accepted principals of economic analysis, and to demonstrate how they can be used to understand a variety of problems, including pollution, unemployment, crime and ticket scalping.In economics in particular, education seems to be largely a matter of unlearning and “disteaching” rather than constructive action. A once famous American humorist observed that “it’s not ignorance so much damage; it’s knowing’ so darned much that isn’t so.”...It seems that the hardest things to learn and to teach are things that everyone already knows.EconomicsEconomics is the study of how people cope with scarcity ---with pressing problem of how to allocate their limited resources among their competing wants as to satisfy as many of those wants as possible.Scope of EconomicsPeople often associate economics with a rather narrow portion of the human experience: the pursuit of wealth; money and taxes; commercial and industrial life. And critics often suggest the economists are obvious to the aesthetic and ethical dimensions of human experience. Such criticism is not altogether unjustified. But increasingly, the economists are expanding their horizons and applying the laws of economics to the full spectrum of human activities.Positive and Normative EconomicsEconomic thinking is often divided into two categories, positive and normative. Positive economics is concerned with the world as it is rather than as it should be. It deals only with the consequences of the changes in the economic conditions or polices. A positive economist suspends questions of values when dealing with issues like crime or minimum wage laws. The object is to predict the effect of changes in criminal code or minimum wage rate---not to evaluate the fairness of such changes. Whereas normative economics deals with the value judgments---with what prices, production levels, incomes, and government policies ought to be. A normative economist does not shrink from the question of what the minimum wage rate ought to be. To arrive at an answer, the economist weighs the results of various minimum wage rates on the groups affected by them---the unemployed, employers, taxpayers and so on. Then, on the basis of value judgments of the relative need or merit of each group, the normative economist recommends a specific minimum wage rate. Of course, values differ from one person to the next. In the analytical jump from recognizing the alternatives to prescribe a solution, scientific thinking gives way to ethical judgment.Microeconomics and MacroeconomicsThe discipline of economics is divided into two main parts: microeconomics and macroeconomics.Microeconomiocs is the study of individual markets---for corn, records, books and so forth---that operate within the broad national economy. When economists measure, explain, and predict the demand for specific products like bicycle and hand calculators, they are dealing with microeconomics. Much of the work of the economist is concerned with the microeconomic analysis---that is with the interpretation of events in the marketplace and of personal choices among products.MacroeconomicsIt is the study of the national economy as a whole, or of its major components. Deals with the big picture not with the details, of the nation’s economic activity.Instead of concentrating on how many bicycles or hand calculators are sold, macroeconomists watch how many goods and services consumers purchase in total, or how much money all producers spend on new plant and equipment. Instead of tracking the price of a particular good in a particular market, macroeconomics monitors the general price level or average of all prices. And instead of focusing on the wage rate and the number of people employed as plumbers or engineers, macroeconomist study the income of all employees and the total number of people employed throughout the economyIn short the macroeconomics involves the study of national production, unemployment and inflation. For that reason this often referred to aggregate economics.Performance of Economic SystemEconomists are also interested in measuring, explaining and, predicting the performance of the economic system itself. To do so they study broad subdivisions of the economy, such as the total output of all firms that produce goods and servicesMajor ConclusionsEconomics is the discipline best described as the study of human interaction in context of scarcity. It is the study of how individually and collectively, people use their scarce resources to satisfy as many of their wants as possible. Economic method is founded in a set of presuppositions about human behavior, on the basis of which economist’s constructs theoretical models. Economic thinking is founded on the assumptions that people’s needs and wants are limitless, but resources, goods, and services are scarce. Thus people choose among the many things they want---they cannot have everything.Individaully or collectively, they must decide what to produce, how to produce it, and for whom to produce it. Resources are things useful in producing the goods and services people want. Economists divide resources into four categories:
Land
Labor
Capital
Technology