Economics is the study of how individuals and societies use limited resources to satisfy unlimited wants. It has two main branches: microeconomics and macroeconomics. Microeconomics analyzes the decisions of consumers and businesses, focusing on supply and demand in individual markets. Macroeconomics looks at entire economies, including topics like GDP, unemployment, inflation, and economic growth. Both branches use scientific methodology like hypotheses, data analysis, and evidence-based evaluations.

1. Chapter 1
Definition of economics
the study of how individuals and societies use limited
resources to satisfy unlimited wants.
Resources are limited but human wants are
unlimited.

2. Economics
• Economics is the social science that analyzes the
production, distribution and consumption of goods
and services.
Fundamental economic problem
scarcity.
individuals and societies must choose among
available alternatives.

3. Economic resources/Factors of Production
• land
– natural resources, the “free gifts of nature”
• labor
– the contribution of human beings
• capital
– plant and equipment
• Entrepreneurial ability/Organization/ Management

4. Resource payments
Economic Resource Resource payment
land rent
labor wages
capital interest
entrepreneurial ability profit

5. Positive and normative analysis
• Positive economics
– attempt to describe how the economy functions
– relies on testable hypotheses
– What is?
• Normative economics
– relies on value judgments to evaluate or recommend
alternative policies.
– What can be done?

6. Economic Methodology
• scientific method
– observe a phenomenon,
– make simplifying assumptions and formulate a
hypothesis,
– generate predictions, and
– test the hypothesis.

7. Branches of Economics
• Economics has two branches: microeconomics and
macroeconomics.
• Microeconomics is the branch of economics that
deals with the personal decisions of consumers and
entrepreneurs.

8. Microeconomics
• Its primary concern is to help consumers and investors make
their lives better by increasing their earnings and satisfying
their needs despite limited resources.
• Also included in its study are the consumers' decisions on
what products to buy and how the cost of commodities is
determined.

9. Microeconomics
• What Does Microeconomics Mean?
•
The branch of economics that analyzes the market behavior
of individual consumers and firms in an attempt to
understand the decision-making process of firms and
households.

10. Microeconomics
• It is concerned with the interaction between individual buyers
and sellers and the factors that influence the choices made by
buyers and sellers.
• In particular, microeconomics focuses on patterns of supply
and demand and the determination of price and output in
individual markets (e.g. coffee industry).

11. Macroeconomics
• Macroeconomics deals with the larger aspects of a nation's
economy, such as the sectors of agriculture, industry, and service.
• It aims to
• (a) speed up the economy's growth rate and increase total
production;
• (b) increase the rate of employment;
Investopedia explains Macroeconomics:
Macroeconomics is focused on the movement and trends in
the economy as a whole, while in microeconomics the focus
is placed on factors that affect the decisions made by firms
and individuals.
What Does Macroeconomics Mean?

12. Macroeconomics
• (c) keep the prices of commodities stable so that
they remain affordable;
• and (d) have sufficient reserves for foreign exchange
for importing goods and paying off loans.
The field of economics that studies the behavior of the aggregate
economy
Macroeconomics examines economy-wide phenomena such
as changes in:
unemployment,
national income,
rate of growth,
gross domestic product,
inflation and
price levels……..Etc.