The Way to Rainy Mountain
PART A
INTRODUCTORY MICROECONOMICS
2
INTRODUCTORY ECONOMICS
INTRODUCTION TO MICROECONOMICS
3
1
WHAT ECONOMICS IS ALL ABOUT?
INTRODUCTION TO MICROECONOMICS
Economics is about economizing; that is, about choice among alternative uses of scarce resources. Choices are made by millions of individuals, businesses, and government units. Economics examines how these choices add up to an economic system, and how this system operates. (L.G. Reynolds) Scarcity is central to economic theory. Economic analysis is fundamentally about the maximization of something (leisure time, wealth, health, happiness—all commonly reduced to the concept of utility) subject to constraints. These constraints—or scarcity—inevitably define a tradeoff. For example, one can have more money by working harder, but less time (there are only so many hours in a day, so time is scarce). One can have more apples only at the expense of, say, fewer grapes (you only have so much land on which to grow food—land is scarce). Adam Smith considered, for example, the trade-off between time, or convenience, and money. He discussed how a person could live near town, and pay more for rent of his home, or live farther away and pay less, “paying the difference out of his convenience”. Economics as a subject came into being with the publication of very popular book in 1776, “An Enquiry into the Nature and Causes of Wealth of Nations”, written by Prof. Adam Smith. At that time it was called Political economy, which remained operational at least up to the middle part of the 19th century. It is since then that the economists developed tools and principles using inductive and deductive reasoning. In fact, the ‘Wealth of Nations’ is a landmark in the history of economic thought that separated economics from other social sciences. The word ‘Economics’ was derived from the Greek words ‘Oikos’ (a house) and ‘Nemein’ (to manage), which meant managing a household, using the limited money or resources a
INTRODUCTORY MICROECONOMICS
2
INTRODUCTORY ECONOMICS
INTRODUCTION TO MICROECONOMICS
3
1
WHAT ECONOMICS IS ALL ABOUT?
INTRODUCTION TO MICROECONOMICS
Economics is about economizing; that is, about choice among alternative uses of scarce resources. Choices are made by millions of individuals, businesses, and government units. Economics examines how these choices add up to an economic system, and how this system operates. (L.G. Reynolds) Scarcity is central to economic theory. Economic analysis is fundamentally about the maximization of something (leisure time, wealth, health, happiness—all commonly reduced to the concept of utility) subject to constraints. These constraints—or scarcity—inevitably define a tradeoff. For example, one can have more money by working harder, but less time (there are only so many hours in a day, so time is scarce). One can have more apples only at the expense of, say, fewer grapes (you only have so much land on which to grow food—land is scarce). Adam Smith considered, for example, the trade-off between time, or convenience, and money. He discussed how a person could live near town, and pay more for rent of his home, or live farther away and pay less, “paying the difference out of his convenience”. Economics as a subject came into being with the publication of very popular book in 1776, “An Enquiry into the Nature and Causes of Wealth of Nations”, written by Prof. Adam Smith. At that time it was called Political economy, which remained operational at least up to the middle part of the 19th century. It is since then that the economists developed tools and principles using inductive and deductive reasoning. In fact, the ‘Wealth of Nations’ is a landmark in the history of economic thought that separated economics from other social sciences. The word ‘Economics’ was derived from the Greek words ‘Oikos’ (a house) and ‘Nemein’ (to manage), which meant managing a household, using the limited money or resources a