Lecture -1 Subject and methods of the economic theory
Lecture outline. • 1. The subject of the economic theory. Three basic problems of daily living 2. The economic theory and other disciplines. The functions of the economic theory
3. Positive and normative economics 4. Microeconomics and macroeconomics
• Economics is the study of how society decides what, how, and for whom to produce.
The subject matter of economics is • human behaviour in the production, distribution, exchange and use of goods and services.
Three basic problems of economics 1. What goods and services to produce 2. How to produce these goods and services 3. For whom to produce these goods and services
The economic theory as a science has relationship with the following subjects such as • philosophy • mathematics • political science and other sciences
Economic theory performs the following functions such as • cognitive • methodological • practical.
Positive economics • The aim of positive economics is to explain how society makes decisions about consumption, production, and exchange of goods
Normative economics • It offers recommendations based on value judgements.
Example • The following statement combines positive and normative economics: “The elderly have very high medical expenses, and the government should subsidize their health bills”.
Microeconomic analysis offers • a detailed treatment of individual decisions about particular commodities.
Macroeconomics emphasizes • the interaction in the economy as a whole. It deliberately simplifies the individual building blocks of the analysis in order to retain a manageable analysis of the complete interaction of the economy.
The main key words of microeconomics • • • Product Price Income Revenue Costs Profit • • Company Firm Factory Consumer Market Demand Supply
The main key words of macroeconomics • • • GNP GDP Unemployment Inflation Consumer goods Budget • • • Export Import Trade balance Payment balance Taxes
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