Economics is a way of thinking about issues which helps us to:
• Understand the economic environment in which management, social, and individual decisions must be made.
• Understand the justifications for, and likely effects of, Government economic policy
• Uses economic principles to make “rational” decisions
What is “Economics”?
• “The study of how people make choices under conditions of scarcity and of the results of those choices for society”
Unlimited wants plus scarce resources
• Choices involve making decisions between competing interests (what, how, for whom),
• The choice involves looking at the Costs and the Benefits involved in the decision
• Measuring the Costs and the Benefits accurately is crucial to the role of economics
The scarcity principle (the ‘no free lunch’ principle):
• Although we have boundless needs and wants, the resources available to us are limited. Consequently, having more of one good thing usually means having less of another.
• The study of individual consumer, firm and market behaviour
• The study of the aggregate economy
• Any decision where securing something of value means going without some other thing of value
The cost–benefit principle
• Economists choose among competing interests by using cost–benefit analysis
• An individual (or a firm or a society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs.
• The cost–benefit principle is one of the core principles of economics
Cost-benefit principle is one of the core principles of economics: