Texts and exercises

1. INTRODUCING ECONOMICS

Economics is the study of the arrangements that societies make for the use and development of their scarce resources. Economics is concerned with the study of human organisations and communities, the problems of measurement and forecasting.

Nearly all governments are committed to programmes designed to promote the growth of living standards and a more even distribution of wealth both nationally and globally. Can we achieve these objectives without serious conflict between and within the nations?

The ‘economist’ in ancient Greece – a title derived from the words Oikos (house) and Nemo (manage) – was really a ‘steward or eNational manager’. ‘Economica’ (300 b.c.), which might be regarded as an early economics textbook, dealt with raising revenuethrough various forms of taxation.

There are two ways for the economist to study economics and the economy: macro approach and micro approach. Macroeconomics studies the economy as a whole, it deals with the questions of Gross Domestic Product, aggregate supply and demand, inflation, monetary and fiscal policy, employment and unemployment.

Microeconomics is concerned with the study of individual decision-making units, i.e. an industry, a company, a consumer, the study of how markets work, how prices are determined, how resources are allocatedand income is distributed.

All communities are confronted with three fundamental questions concerning the use of their resources:

– What to produce?

– How to produce?

– For whom to produce?

These questions arise because resources are scarce in relation to needs. Although these questions are common to all societies, the methods used for dealing with them will naturally vary enormously – ranging from the primitive subsistence economy to an industrialised one. The way a society answers these fundamental questions is known as its economic system. Economic systems can be classified as traditional (in tribal cultures, for example), command (the former Soviet Union or North Korea), and market systems (the United Nationals, Japan), but no real existing economy is a pure form of above-mentioned ones. Every economy uses a ‘mix’ of allocating mechanisms to answer the basic economic questions. Models shown in Fig.1 attempt to classify these economic systems.