Topic One; Introduction
1. Some basic concepts
o What is economics
o Micro versus macro economics
o Positive versus normative economics
o Notion of ceteris paribus
2. Mathematical review
o Equation of a straight line and slopes
o Calculating % changes
3. Scarcity, Choice & Opportunity Cost
o Illustrating concepts using a PPF
o Shifts in a PPF
o The consumption possibility frontier
1. Basic Concepts
1.1What is economics?
The study of individuals in their everyday business of life.
The study of the use of scarce resources to satisfy our unlimited wants.
1.2 Micro economics vs. Macro
o Small sectors, studies behaviour in these small components of the economy.
o Study of consumers, individuals firms, small parts of the economy being looked at under
o Broad aggregate
o How is the economy’s balance of payments, income, etc.
1.3 Positive versus normative
o The study of what is
o Use data to see whether a statement is true or false
Statement: If taxes on beer increase, consumption of beer will decrease.
Question: Do higher taxes on beer reduce its consumption.
o There is no value judgement – just gather data on consumption before and after taxes.
o The study of what should/ought to be
o You cannot test the validity of the statement
Statement: The government should tax the rich more.
Question: Should the government tax the rich more?
The answer depends on who you ask – a rich person may have a different
answer than a poor person. 1.4 Notion of Ceteris Paribus
Loosely translated: “All other things remaining the same”
Example: Advertising ↑ and as a consequence Sales ↑
o That statement only holds true only if you assume ceteris paribus
2. Mathematical Review
2.1 Equation of a straight line & slopes
o Y = c + m ∙ x
c = intercept on the vertical axis
m = slope
y = 8 – 4 (x)
0 = 8 – 4 (2)
o If you have a curved line, the slope is not a constant value
o You can figure out the curve at certain points, but not overall
Where the slope is positive we say there is a positive or direct association between y and x.
o As x increases, y increases. As x decreases, y decreases.
Where the slope is negative we say there is a negative or inverse association between y and x.
o As x increases, y decreases. As x decreases, y increases.
Straight vertical line:
o one point on x is associates to many points on y so there is no association
o Slope = plus or minus infinity
Straight horizontal line:
o one point on y is associates to many points on x so there is no association
o Slope = 0
o Y = f (x)
Y is a function of x
(x) argument of the function
Y = f (x, z, w)