Principles of Economics – Lesson 1:
Introduction
• By N. Gregory Mankiw
Learning Objectives
• - Define economics and its importance
• - Explain scarcity and the need for choices
• - Identify the roles of economists
• - Distinguish between microeconomics and
macroeconomics
• - Apply concepts to real-life examples
What is Economics?
• Definition: Economics is the study of how
society manages its scarce resources.
• Examples:
• - A family deciding whether to buy a new
phone or save money.
• - A student choosing between studying
economics or working part-time.
• - A business deciding how many employees to
hire.
Scarcity and Choice
• Definition of Scarcity: The limited nature of
society’s resources.
• Key Idea: Because resources are scarce,
people must make choices and face trade-offs.
• Examples:
• - Choosing between buying clothes or saving
for education.
Trade-Offs and Opportunity Cost
• Definition of Trade-Offs: Giving up one thing to
get another.
• Definition of Opportunity Cost: The next best
alternative that is given up when making a
choice.
• Examples:
• - Choosing to attend university → Opportunity
cost = Income you could earn if you worked
instead.
The Role of Economists
• - As Scientists: Study cause-and-effect
relationships in the economy.
• - As Policy Advisors: Suggest policies to
improve economic outcomes.
• Examples:
• - Scientist: Studying how higher interest rates
affect savings.
• - Policy Advisor: Suggesting tax cuts to boost
consumer spending.
Microeconomics vs.
Macroeconomics
• Microeconomics: Study of individual decision-
making by households and firms.
• Macroeconomics: Study of the economy as a
whole.
• Examples:
• - Micro: How much a bakery charges for
bread.
• - Macro: Pakistan’s unemployment rate or
inflation level.
Why Study Economics?
• - Improves decision-making in personal life
• - Helps understand national and global issues
• - Provides tools to evaluate government
policies
• - Encourages logical and critical thinking
• Examples:
• - Knowing how inflation affects your
purchasing power.
Summary
• - Economics studies scarcity, choices, and
opportunity costs.
• - Economists act as scientists (analyzing) and
policy advisors (recommending).
• - Economics has two branches: Micro and
Macro.
• - Studying economics makes us better
decision-makers in life and work.
Discussion Questions
• 1. What was a trade-off you made today?
• 2. Can you think of an opportunity cost in your
last big decision?
• 3. How do micro and macro decisions affect
your daily life?
Closing
• “Economics is everywhere, and understanding
it can help you make better decisions in life.” –
N. Gregory Mankiw