Economics

1. First practical lesson
Text 1.THE SUBJECT AND METHODS OF
ECONOMICS
Read the text and answer the questions
In every science has its own subject, that is, its main
research topic. The focus of economics - industrial life of
society, economic linkages and relationships between
people in the creation, distribution, exchange and
consumption of goods.
There are many definitions of economics. One of
them was formulated by Paul Samuelson, which have
been used by economists all over the world for decades:
Economics is the study of how societies use scarce
resources to produce valuable commodities and distribute
them among different people.

2. Economics serves as the general theoretical
and methodological basis for all economic
sciences, since of develops basic concepts,
definitions, terms as well as general directions
and methods of scientific research.
The easiest way to get a feel for the breadth
and depth subject of economics is to explore
briefly the way economics is organized.
First of all, there are two major divisions of
economics: microeconomics and
macroeconomics.

3. The economic framework method is essential for
the modern economic reasoning as it divides the
economic thought into more comprehensive
areas of study.
Microeconomics deals with the functioning
of individual industries and the behaviour of
individual economic decision-making unit. The
choices of individual businesses about what,
how and for whom to produce and the choices
of households about what goods and how much
of it to buy help to explain why the society
produces anything.

4. Another question that microeconomics addresses is who
gets the things that are produced. Wealthy households get
more output than do poor households, and the forces that
determine this distribution of output are the province of
microeconomics.
Why somebody is poverty? Why do some jobs pay more
than others? Why do teachers or plumbers or baseball pitchers
get paid what they do?
Macroeconomics, in its turn, deals with the functioning
of national economic complex and the behaviour of the main
classes and social groups.
Macroeconomics is the study of how the economy
behaves in broad outline without dwelling on detail.
Macroeconomics is concerned largely with the behaviour of
economic aggregates, such as total national product, total
investment, and exports for the entire economy. It is also
concerned with the average price of all goods and services,
rather than the prices of specific products.

5. Economic methods are the principles underlying the economic
reasoning. Such methods are concerned with the scientific explanation
of economics and the relations between different economic factors. By
using the methodology in economics, specialists are able to determine
the outcomes of certain conduct by countries and explore the
developments on a individual, domestic and global level.
Economics uses some methods of general philosophical. For
example, classical economists favors deductive method that is
movement is from general to particular, including following steps:
observation of already existing truth or principles, defining key terms
and making assumptions, derivation of hypothesis, testing of
hypothesis, statement of law of economics.
Most of microeconomics laws (law of demand, law of supply)
are based on this method. Under this method laws are deduced
logically. Conclusions are drawn from certain fundamental
assumptions which have been established. This method is based on
abstract reasoning not on actual facts. For example, it is assumed that
man is rational and on the basis of this it is deduced that he will buy
cheap and sell dear but in actual situation due to absence of proper
knowledge this may not happen.

6. Other method is inductive. Under this method conclusions are
drawn on the basis of collection and analysis of facts relevant to
research. This method is including following steps: collection of data,
arrangement of data, analysis of data, derivation of hypothesis, testing
of hypothesis
Inductive method is movement is from particular to general, one
to universal. Most of macroeconomics laws are based on this method
like consumption function, investment function. This method insists
on the experimental facts and then general principals. It leads to exact
conclusions. It shows that laws are valid only under certain conditions.
Both two methods go side by side the conclusions drawn from
deductive method are verified by inductive method of observing
concrete facts of life.
Main specific methods of economics are experimental,
mathematical and comparative statics.
Experimental economic methods are concerned with applying
economic data to test the validity of statements related to future
economic developments.

7. For example, if clinics expect an increase in the demand for
medical services, economists would take data about the current and
future condition of these medical services and would apply it to the
current interest the public has toward these goods. Thus they can
estimate predicted prices and demand for medical services.
Mathematical economics is the method of using mathematics in
calculating economic variables. The method embraces a huge variety
of mathematical equations that aim to determine the current and
future state of an economy. For example, mathematical economic
methods are used to determine the unemployment rates; economists
can advise decision makers on actions to reduce the impact of
upcoming employment problems.
Mathematical methods includes economic models. More often,
a "model« means a specific quantitative formulation of a theory. In
this case, specific numbers are attached to the mathematical
relationships defined by the theory, the
numbers often being derived from observations of the economy. The
specific form of the model can then be used to make precise
predictions about, say, the behaviour of prices in the market off
medical services, or the course of employment medical personal.

8. Comparative statics is the economic method which compares two
economic outcomes before and after a change. For example, while using
comparative statics, an individual can observe the change in the health
industry.
Economics asks and attempts to answer two kinds of questions, positive
and normative.
Positive economics attempts to understand behaviour and the
operation of economic systems without making judgements about whether the
outcomes are good or bad. It strives to describe what exists and how it works.
For example, what determines the wage rate, what would happen if
government abolished the corporate income tax, etc. The answers to such
questions are the subject of positive economics.
Normative economics looks at the outcomes of economic behaviour
and asks if they are good or bad and whether the outcomes can be made
better. Normative economics involves judgements and prescriptions for
preferred courses of action. For example, should the government be involved
in regulating the price of medical services? Normative economics is often
called policy economics.
The aim of economics is to define laws and essence of economic
phenomena.

9. Economic phenomena and processes are
subordinated to the objective laws, which are
commonly called economic ones. They are of the
objective character, i.e. they don‘t depend on
human will and consciousness, but at the same time
they are not historically eternal, they change with
the change of conditions of economic life.
Economic laws express the essence of
phenomena and the level of their cognition by a
person. They reflect stable, causal relationship
between these phenomena or processes. They are
typical and variable, that‘s why they form a definite
system of economic laws that correspond to this or
that way of production.
Economic laws might be classified:

10. - general – the laws, typical of all ways of production of all epochs;
- special – the ones, typical of the ways of production of the same type;
- specific – the laws, typical of definite ways of production with
definite
- economic conditions.
The objective nature of economic laws presupposes not only the
necessity, but also the possibility of taking into account their demands
in economic practice. It allows to elaborate a scientific mechanism of
regulation of social production and to use the knowledge of economic
laws while decision-making. Thus, the functions of economic laws
are:
- to reflect the objective state of economy;
- to anticipate the necessity and possibility to use them in economic
practice;
- to promote the elaboration of a scientific mechanism of social
production тmanagement;
- to use the knowledge of economic laws while decision-making.

11. Questions:
1. What is the subject of economics?
2. Which two main divisions of economics do you
know?
3. What kind of methods of economics do you
know?
4. What are the differences between a normative
and a positive economics?
5. What is classification of economic laws?
6. What are the functions of the economy?