Transcript econimic is the social science

Professor Ashgan Abou Gabal

1. What Economics is all about? (Concepts & Definitions)
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2. micro and macroeconomics
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3. positive versus normative
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5. Economics as an Art
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6. Significance/Advantages of Economics
 Political
economy was the earlier
name for the subject, but
th
economists in the late 19 century
suggested "economics" as a
shorter term for
“Economic Science“
At the turn of the 21st century, the expanding
domain of economics in the social sciences
has been described as
 Economic Imperialism
 There are a variety of modern definitions of
economics. Some of the differences may
reflect evolving
- views of the subject or
- different views among economists.[12]

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Economics is the social science that
analyzes the production, distribution, and
consumption of goods and services.
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The field of economics is traditionally
divided into two broad subfields
Microeconomics
Macroeconomics
Microeconomics
study the decisions of
individual
study the decisions of
households and firms
Macroeconomics
study the operation of the
economy as a whole which is
just the sum of the activities
of all these decision-makers
- the changes over time in
the economy’s rate of
unemployment
- alternative policies to raise
growth in national living
standards .
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Microeconomics Micro comes from Greek
word mikros, meaning “small”
focuses on the individual parts of the
economy (such as households and firms or as
buyers and sellers) .
 How households and firms make decisions and
 how they interact in specific markets
Macroeconomics : Macro: comes from Greek word, makros,
meaning “large”

looks at the economy as a whole.
 Economy-wide phenomena, analyzes the
entire economy and issues affecting it,
including unemployment, inflation, economic
growth, and monetary and fiscal policy.
The study of the national economy and the global economy as
a whole.
 Focuses on big picture and ignores fine details

Microeconomics
vs.andMacroeconomics
Examples of microeconomic
macroeconomic concerns
Microeconomics
Macroeconomics
Production
Prices
Income
Employment
Production/Output
in Individual
Industries and
Businesses
Price of Individual
Goods and Services
Distribution of
Income and Wealth
How much steel
How many offices
How many cars
Price of medical
care
Price of gasoline
Food prices
Apartment rents
Wages in the auto
industry
Minimum wages
Executive salaries
Poverty
Employment by
Individual
Businesses &
Industries
Jobs in the steel
industry
Number of
employees in a firm
National
Production/Output
Aggregate Price
Level
National Income
Total wages and
salaries
Employment and
Unemployment in
the Economy
Total Industrial
Output
Gross Domestic
Product
Growth of Output
Consumer prices
Producer Prices
Rate of Inflation
Total corporate
profits
Total number of
jobs
Unemployment rate
economic
theory
rational
applied
economics
behavioral
economics
positive
economics
normative
economics
(describing
"what is")
(advocating
"what ought
to be");
mainstream
economics
heterodox
economics"
(dealing with the
"rationalityindividualismequilibrium nexus");
(more "radical" and
dealing with the
"institutions-historysocial structure
nexus").[3]

When economists are trying to explain the
world, they are scientists.

When economists are trying to change the
world, they are
policy advisor.
for example,
Why, is unemployment higher for teenagers than for
older workers?
 Sometimes economists are asked to recommend
policies to improve economic outcomes.
 What, for instance, should the government do to
improve the economic well-being of teenagers?

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When economists are trying to explain the world,
they are scientists.
 When they are trying to help improve it, they are
policy advisers.

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Because scientists and policy advisers
have
different goals, they use language in different
ways.
For example, suppose that two people are discussing
minimum-wage laws. Here are two statements you
might hear:
 POLLY: Minimum-wage laws cause unemployment.
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NORMA: The government should raise the
minimum wage. SO WHAT IS THE DIFFERENCE
POLLY
Polly is speaking
like a scientist
She is making a claim
about
how the world works
Positive statements
NORMA
Norma is speaking
like a policy adviser
She is making a claim about
how she would like to
change the world.
Normative statements
Prescriptive
Descriptive
how the world ought
how the world is about
to be
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An economist might evaluate
Polly’s statement by
 analyzing data on changes in minimum wages and
changes in unemployment over time.
.
Norma’s statement
 cannot be judged using data alone.
 Deciding what is good or bad policy is not merely a
matter of science.
 It also involves our views on ethics, religion, and political
philosophy.
Positive Science
(What is? What was? What will
be?) – actual happenings
Examples of Positive statements
- India is an over-populated
country.
- Prices in Indian economy are
constantly rising
Normative
Science
(What ought to be? What ought to
have been?)
Examples :
- Fundamental principle of
economic development should be
the development of rural India
- Agricultural income should also
be taxed

Study of how economy works

Statements about how the economy works
are positive statements, whether they are
true or not

Accuracy of positive statements can be
tested by looking at the facts(and just the
facts)
Lieberman & Hall; Introduction to Economics, 2005
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Study of what should be
 Statements that suggest what we should do about
economic facts, are normative statements
 Normative statements cannot be proved or
disproved by the facts alone
 Used to make value judgments, identify problems,
and prescribe solutions
Lieberman & Hall; Introduction to Economics, 2005
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Example
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Ahmed- minimum wage laws cause unemployment
Mustafa- the govt. should raise the minimum wage.
Difference between positive and normative statement
 Positive: can test their validity
 Normative: value judgment
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Positive or Normative Statements?
?
 An increase in the minimum wage will cause a
?
decrease in employment among the least-skilled.
POSITIVE
 Higher federal budget deficits will cause interest
rates to increase.
POSITIVE
?
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Positive or Normative Statements?
?
 The income gains from a higher minimum wage
are worth more than any slight reductions in
employment.
NORMATIVE
 State governments should be allowed to collect
from tobacco companies the costs of treating
smoking-related illnesses among the poor.
NORMATIVE
?
?
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Give an example of a positive
statement and an example of a
normative statement.

Some government agencies that collect
economic data and make economic policy:
 Department of Commerce
▪ http://www.commerce.gov
 Bureau of Labor Statistics
▪ http://www.bls.gov
 Congressional Budget Office
▪ http://www.cbo.gov
 Federal Reserve Board
▪ http://www.federalreserve.gov

Give an example of some government
agencies that collect economic data and
make economic policy in Dubai
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Name three parts of government that
regularly rely on advice from economists.
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Why do economists so often appear to give
conflicting advice to policymakers?
There are two basic reasons:
Economists may disagree about the
validity of alternative positive theories
about how the world works.
Economists may have different values and,
therefore, different normative views about
what policy should try to accomplish.
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Much of economics just tries to explain how
the economy works.
Yet often the goal of economics is to
improve how the economy works.
When you hear economists making
normative statements, you know they have
crossed the line
from scientist to policy adviser.
Suppose that Peter and Paul both take the same amount of water from
the town well. To pay for maintaining the well, the town taxes its
residents.
Peter has income of $50,000 and is taxed $5,000, or 10 %
Paul has income of $10,000 and is taxed $2,000, or 20 %
Is this policy fair? If not, who pays too much and who pays too little?
Does it matter whether Paul’s low income is due to a medical disability
or to his decision to pursue a career in acting?
 Does it matter whether Peter’s high income is due to a large
inheritance or to his willingness to work long hours at a dreary job?
 These are difficult questions on which people are likely to disagree.
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If the town hired two experts to study how the town should tax its
residents to pay for the well, we would not be surprised if they offered
conflicting advice.
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Science is a theoretical aspect whereas
Art
is a
practical aspect. In economics we study consumption,
production, public finance etc, which provide practical
solutions to our daily economic problems.

Study of cause and effect of inflation or deflation falls
Science
within the purview of
but framing
appropriate and suitable monetary and fiscal policies
to control inflation and deflation is an
Art.
Theoretical Advantages
- Increase in Knowledge
- Developing Analytical Attitude
Practical Advantages
Significance for the consumers Significance for producers Significance for workers Significance for politicians Significance for academicians Significance for administrators Effective man-power planning Helpful in fixing price Solving distribution problems -
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ECONOMIC GROWTH
FULL EMPLOYMENT
ECONOMIC EFFICIENCY
PRICE LEVEL STABILITY
Economic Freedom
EQUITABLE DISTRIBUTION OF INCOME
ECONOMIC SECURITY
BALANCE OF TRADE

To understand the world better
 You’ll begin to understand the cause of
many of the things that affect your life

To gain self-confidence
 You’ll lose that feeling that mysterious,
inexplicable forces are shaping your life for
you
Lieberman & Hall; Introduction to Economics, 2005
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To achieve social change
 You’ll gain tools to understand origins of social
problems and design more effective solutions
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To help prepare for other careers
 You’ll discover that a wide range of careers deal
with economic issues on many levels

To become an economist
 You’ll begin to develop a body of knowledge that
could lead you to become an economist in the
future
Lieberman & Hall; Introduction to Economics, 2005
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