Prepared by : A . A . Abougabal
Aims of the course:
To provide undergraduates with
• a wide knowledge of the most basic economic
concepts and different models of microeconomics;
• To introduce the students to consumer and firm
behavior; to explain most basic demand and supply neoclassical theory; and to deliver a solid understanding of
markets and the meaning of pricing
• To familiarize the students with the role of government
in changing the economy's efficiency and to present
basic concepts in mathematical formulae and graphs in
a systematic manner; and to describe recent data and
real-world examples
HISTORY OF ECONOMIC THOUGHT
A 1638 painting of a French seaport during the heyday of mercantilism
PREPERED BY : A.A.ABOUGABAL
1. Origin of Economics
Our activities to generate income are termed as
economic activities, which are responsible for the
origin and development of Economics as a subject.
The word economy comes from a Greek word for
“one who manages a household.”
In fact, households and
economies have much in common
Economy is concerned with the production,
consumption, distribution and investment of goods
and services.
 A household faces many decisions
 Who cooks dinner?
 Who does the laundry? Who gets the extra
dessert at dinner?
 WHO AND WHO AND ………..
 Like a household, a society faces many
decisions. A society must decide what
 jobs will be done and who will do them.
 WH0 grow food, make clothing, and still others to
design computer software
 The management of society’s resources is
important because resources are scarce.
 Scarcity means that society has limited
resources and therefore cannot produce all the
goods and services people wish to have.
 In most societies, resources are allocated not by a
single central planner but through the combined
actions of millions of households and firms.
How the
story begin
Science evolution
New
classical
economics
Classical
political
economy
Kenisian
,post and
Modern
economic new
History of economic thought
Economic writings date from earlier Greek, Roman, 
Indian, Chinese, and Arab civilizations.
Notable writers from antiquity through to the 14th 
century include
Aristotle,
Xenophon,
Chanakya (also known as Kautilya),
Qin Shi Huang,
Thomas Aquinas, and
Ibn Khaldun.
The works of Aristotle had a profound
influence on Aquinas, who in turn influenced
the late scholastics of the 14th to 17th
centuries and coming nearer than any other
group to being the 'founders' of scientific
economics”
Then
mercantilists" and
"
"physiocrats",
were associated with the rise of
economic nationalism and
modern capitalism
Mercantilists" Versus
Physiocrats",
Mercantilism
• It held that a nation's wealth depended on its accumulation of
gold and silver
16th to 18th century
Economic
nationalism
• The doctrine called for importing cheap raw materials to be used in
manufacturing goods, which could be exported
Physiocrats
• Physiocrats believed that only agricultural production
generated a clear surplus over cost, so that agriculture was the
basis of all wealth
• Physiocrats advocated replacing administratively costly tax
collections with a single tax on income of land owners.
• the physiocrats advocated a policy of laissez- faire, which
called for minimal government intervention in the economy
18th century French
thinkers
Modern
Capitalism
• for state regulation to impose protective tariffs on foreign
manufactured goods and prohibit manufacturing in the colonies
Modern economic analysis begun with Smith,
he is a Scottish political economist and
moral philosopher “
Adam Smith (1723–1790) he was harshly critical of the
mercantilists but described the physiocratic system
"with all its imperfections”
The publication of Adam Smith's The Wealth of
Nations in 1776, is considered to be the
first
economic
formalisation of
thought and has been described as "the
effective birth of economics as a separate
discipline.
The book identified land, labor, and
capital as the three factors of
production
and
the
major
contributors to a nation's wealth.
Smith discusses potential benefits of specialization by division of labour,
including increased labour productivity and gains from trade, whether
between town and country or across countries
His "theorem" that "the division of labor is limited by the extent of the market"
has been described as the "core of a
theory of the function of
the firm and industry " and a "fundamental principle of economic
organization.
To Smith has also been ascribed "the most important substantive proposition in
all of economics" and foundation of resource allocation theory –
that, under competition, resource owners (of labour, land, and capital) seek
their most profitable uses, resulting in an equal rate of return for all uses in
equilibrium (adjusted for apparent differences arising from such factors as
training and unemployment).
employ any
capital they
might
command
for
positively
related to
the value of
produce
“Invisible Hand”
Smith assumed that individuals try to maximize their own good
(and become wealthier), and by doing so, through trade and
entrepreneurship, society as a whole is better off.
Furthermore, any government intervention in the economy isn't
needed because the invisible hand is the best guide for the
economy.
He said that if the government doesn’t do anything, there’s a
controlling factor of people themselves who can guide
markets.
I believe that the government should be responsible in defining
the property rights, to set up honest courts, to impose minor
taxes and to compensate for well defined “market failures”
- If I sell candies for 1 pound each and
- other siller sells them for 2 pounds for 3 pieces,
- he will get all the business making me lose
mine
- so in order to compensate for my loss I should
be forced to lower my price as to stay alive in
the business.
- I am guided by an invisible hand which is my
self interest to gain profit or as Adam Smith
would say everyman for himself.
Human population, tended to increase geometrically, while
the production of food, increased arithmetically.
The force of a rapidly growing population against a limited amount
of land meant diminishing returns to labour.
The result, he claimed, was chronically low wages, which
prevented the standard of living for most of the population from
rising above the subsistence level.[123]
Malthus also blamed unemployment upon the economy's tendency
to limit its spending by saving too much,
focused on the distribution of income among landowners,
workers, and capitalists.
Ricardo was the first to state and prove the principle of
comparative advantage,
according to which each
country should specialize in producing and exporting goods in
that it has a lower relative cost of production, rather relying
only on its own production.
It has been termed a "fundamental analytical explanation" for
gains from trade .
Mill pointed to a distinct difference between the
market's two roles:
- allocation of resources
- and distribution of income.
The market might be efficient in allocating
resources but not in distributing income, he
wrote, making it necessary for society to
intervene.
The first volume of Marx's major work,
Das Kapital,
was published in German in
1867.
Marx focused on the
- labour theory of value
held that the value of an exchanged
commodity was determined by the labour
that went into its production .
- theory of surplus value.
demonstrated how the workers only got
paid a proportion of the value their
work had created.
I- Neoclassical
economics
-Economics, the term “instead of political economy
- Micro economics
- Macro economics
II- Modern economics
- Economitrics
- game theory
- market frailer
III – Keynesian ,
- post Kynesian
- new kynesian
Alfered Marshall 1870 to 1910.
Marginalism “
The term “Economics" was popularized by such
neoclassical economists as Alfered Marshall l as a
concise synonym for 'economic science' and a substitute
for the earlier “ political economy ".[2]
Neoclassical economics systematized Supply and demand
as joint determinants of price and quantity in market
equilibrium, affecting both the allocation of output and
the distribution of income.
Micro
economics
• represents incentives and costs
as playing a pervasive role in
shaping and dicision making
• the study of the choices of
individual
Macro
economics
• it is reflected in an early and
lasting neoclassical synthesis with
Keynesian macroeconomics
• study of the national economy
and the global economy as a
whole.
Modern economics builds on neoclassical
economics but with many refinements that either
supplement or generalize earlier analysis, such as
•econometrics,
•game theory,
•market failure and imperfect competition,
•neoclassical model of economic growth for
analyzing long-run variables affecting national
income.
John Maynard Keynes
The
General
Theory
of
Employment,
Interest
and
Money (1936),
The
book
focused
on
determinants of national
income in the short run
New-Keynesian economics
tend to share with other economists the
emphasis on models
Post- Keynesian economics, Joan Robinson
concentrates on macroeconomic rigidities and
adjustment processes.
Keynesian economics, John Maynard Keynes
The General Theory of Employment, Interest and Money (1936),
which ushered in contemporary macroeconomic as a distinct field.
It is generally associated with the University of
Cambridge and the work of
Joan Robinson
- concentrates on macroeconomic rigidities and
adjustment processes.
- Research on micro foundations for their models
is represented as based on real-life practices
rather than simple optimizing models.
is also associated with developments in
the Keynesian fashion. Within this
group researchers tend to share with
other economists the emphasis on
models
2. What Economics is all about?
Stages & Definitions of Economics
Wealth
Definition
(Adam
Smith)
Welfare
Definition
(Ayred
Marshall)
Scarcity
Definition
(L.
Robbins)
Growth
Oriented
Definition
(Samuelsons)
Need
Oriented
Definition
(Jacob
Viner)
Wealth Concept:
a.Wealth Concept:
Adam Smith, who is generally regarded as father
of
economics, defined economics as “ a science which
enquires into the nature and cause of wealth of
nation”. He emphasized the production and growth of wealth as
the subject matter of economics.
Characteristics
#
Takes into account only material goods.
Criticism of Wealth Oriented Definition:
#
Considered economics as a dismal or selfish science.
#
Defined wealth in a very narrow and restricted sense
which considers only material and tangible goods.
#
Have given emphasis only to wealth and reduced man to
secondary place in the study of economics.
Welfare Concept
b. Welfare Concept :
A. Marshall
“Economics is a study of
mankind in the ordinary business of life; it
examines that part of individual and social action
which is most closely connected with the attainment
and with the use of material requisites of well
being. Thus, it is on one side a study of wealth;
and on other; and more important side, a part of the
study of man.
According to
Characteristics :
- It is primarily the study of mankind.
- Takes into account ordinary business of life
– It is not concerned with social, religious and political
aspects of man’s life.
- Emphasize on material welfare as the primary concern of
economics i.e., that part of human welfare which is
related to wealth.
Criticisms:
- treating economics as a social science rather
than a human science, thus welfare
definition restricts the scope of economics
to the study of persons living in organized
communities only.
- Criticized because of the distinction made
between economic and non-economic.
- Welfare in itself has a wide meaning which is
not made clear in definition.
Scarcity Concept
C. According to Lionel Robbins: “Economics is the
science which studies human behavior as a
relationship between ends and scarce means
which have alternate uses”
Characteristics
- Economics is a positive science.
- Unlimited ends ( wants ).
- Scarce means.
- Alternative use of means.
- Choice – study of human behavior.
Superiority over Welfare Definition :
- Tried to bring the economic problem which forms
the foundation of economics as a social science.
- The scarcity definition of economics is most
universal in nature.
- Has taken both sciences in account i.e. Social
and Human.
- It takes into account all human activities.
- Consideration of neutral science was considered
much logical.
.
Criticism:
- His definition does not focus on many important
economic issues of cyclical instability,
unemployment, income determination and
economic growth and development.
- Does not take into account the possibility of
increase in resources over time.
- Has treated economics as a science only. But in fact
it is both a science and an art
D. Growth/Development Concept
D
According
to
Prof.
Samuelson
“Economics is the study of how men and
society choose with or without the use
of
money,
to
employ
the
scarce
productive
resources
which
have
alternative uses, to produce various
commodities over time and distribute
them for consumption now and in future
among various people and groups of
society.
.
Characteristics
- The definition is not merely concerned with the allocation
of given resources but also with the expansion of
resources, tries to analyze how the expansion and growth
of resources to be used to cope with increasing human
wants.
- More dynamic approach.
- According to him problem of resource allocation is a
universal problem whether it is a better economy or an
exchange
economy.
Criticism:
Definition is comprehensive in nature as it is
both growth oriented as well as future oriented
E. Need Oriented Definitions
According to Jacob Viner
“Economics is what economists do”
A good definition of economics
Study of choice under conditions of scarcity
Scarcity
Situation in which the amount of something
available is insufficient to satisfy the desire for it
Definition
Wealth
Welfare
Scientist
Adam
Smith
Ayred
Marshall
Scarcity
Robbins)
Economics is a study of
Growth
Oriented
Need
Oriented
Samuelsons
Jacob
Viner
Economics is a study of
Wealth
science which enquires into the nature and cause of wealth of
nation”
Welfare
mankind in the ordinary business of life; it is on one side a study
of wealth; and on other; side, a part of the study of man.
Scarcity
science which studies human behavior as a relationship
between ends and scarce means which have alternate uses
Growth oriented
study of how men and society choose the use of money, to
employ the scarce productive resources which have alternative
uses, to produce various commodities over time and distribute
them for consumption now and in future among various people
and groups of society.
Need Oriented
Economics is what economists do”
Characteristic s
Criticism
Wealth
Takes into account only material goods -Considered economics as a selfish
science.
-Defined wealth narrow sense
which considers only material
and
tangible
goods.
- emphasis only to wealth and
reduced man to secondary place
in the study of economics.
Welfare
- the study of mankind
-Takes into account ordinary business
of life
- concerned with social, religious and
political aspects of man’s life.
- Emphasize on material welfare as.,
that part of human welfare which is
related to wealth.
- restricts the scope of economics
to the study of persons living in
organized
communities only.
- distinction made between
economic and
non-economic.
- Welfare in itself has a wide
meaning which is not made clear in
definition.
Scarcity
Growth
Oriented
Need
Oriented
Characteristic s
Criticism
Economics is a positive science.
Unlimited
ends
(
wants
).
-Scarce
means.
Alternative use of means.
- Choice , study of human behavior.
-does not focus on important i.e , issue
of
unemployment,
incom
determination economic growth an
development.
-Does not take into account th
possibility of increase in resources ove
time.
- Has treated economics as a scienc
only. But in fact it is both a science an
an art
- not merely concerned with the allocation - comprehensive in nature as it is bot
of given resources but also with the growth oriented as well as futur
expansion of resources.
oriented
-More dynamic approach
-problem of resource allocation is a
universal problem
Study of choice under conditions of
scarcity
A good definition of economics
Notes
Remember
- What is the Smith's invisible-hand concept
- the difference between the 5 definition of
economics
Study well the main characteristics'
criticism of each
Make a comparison
and new approaches
and
between Keynesian post
GOOGLE
Gregory Mankiw microeconomics ppt
Select ,
FIRST CHOICE ,
Mankiw 3e micro
power point
Ashgan Abou Gabal , room # G 27
That IS THE END