Introduction to Economics Basic Concepts and Pri

IntroductiontoEconomics:BasicConceptsandPrinciplesQuestions:Useyourownwordstoexplainwhatthedefinitionandpurposeoftheeconomicsis.Whatarethemeaningsofchoicesandconstraintinaneconomiccase?pleasegiveinterpretationsaswellasspecificexamples(atleasttwoexamples).Whatistherelationshipbetweendemandandsupply?Givesomeexamples.Whyistheequilibriumever-elusive?Whataretwopreconditionsforatotallyfreeandefficientmarket?absenceof“unnecessary”governmentquotasandregulations.Giveanexampleofopportunitycost.（excepttheoneinthearticle）Asanovice,economicsseemstobeadrysocialsciencethatislacedwithdiagramsandstatistics;acomplexbranchthatdealswithrationalchoicesbyanindividualaswellasnations—abranchofstudywhichdoesnotbefitisolatedstudybutdelvingintothedepthsofothersubjectareas(suchaspsychologyandworldpolitics).WhatisEconomics?EconomicsDefinition:Economicsisessentiallyastudyoftheusageofresourcesunderspecificconstraints,allboundwithanaudacious（takesriskinordertoachievesomething）hopethatthesubjectunderscrutiny(beingobservedorstudiedverycarefully)isarationalentitywhichseekstoimproveitsoverallwell-being.Twobrancheswithinthesubjecthaveevolvedthus:microeconomics(individualchoices)whichdealswithentitiesandtheinteractionbetweenthoseentities,whilemacroeconomics(aggregateoutcomes)dealswiththeentireeconomyasawhole.Atypicalcollegestudent(oranoverburdenedhusband?)appreciatesthelessonsofeconomicsinday-to-daylife.Semesterbooksandcartonofcigarettes(choices)aretobepurchasedwithalimitedamountofpocketmoney(constraints).Theaimofstudyingeconomicsistounderstandthedecisionprocessbehindallocatingthecurrentlyavailableresources,theneedsalwaysunlimitedbutresourcesbeinglimited.AdamSmithwrote‘AninquiryintotheNatureandCausesoftheWealthofNations‘whichasthenamesuggests,wasanattemptatunderstandingthereasonsbehindtheeconomicgrowth(orlackthereof)ofanation.Aninterestingbackdroptoconsiderhere—thefundamentalassumptionthatweneedtomakeforthewholeeconomicsystem(asweknowittoday)toworkisthathumanbeingsaremotivatedbypureself-interestandwilltakedecisionsthattheythinkwillmakethem‘betteroff’noworsometimeinthefuture.Theeconomicandpoliticalsystemsofacountryarecloselyinter-linkedandjointlydeterminethewell-beingofitscitizens.EconomicsBasics–Demand&SupplyItisperhapsoneofthemostfundamentaltenetsandprovidesafundamentalframeworkinwhichtoassesstheactionsofaneconomy.DefinitionofDemand:Demandisthequantityofagood(orservice)thebuyersarewillingtopurchaseataparticularprice.DefinitionofSupply:Supplyisthequantityofagoodthesellersarewillingtodeliverataparticularprice.Meanwhilepriceisaresultoftheconstanttug-of-warbetweenthedemandandsupply.Andallotherrandomthingskeptconstantforagood(brand,qualityetc.);highertheprice—lowerwillbethedemandfromtheconsumer(tosaveupforotherpurchases).Highertheprice,higherwillbethesupplyfromthemanufacturers(makehaywhilethesunshines!).Theformeriscalledthelawofdemand,andlatteriscalledthelawofsupply.Timealsoplaysahugeroleinafree-marketeconomy,moresointhecaseofentitiesinacompetitiontoservetheconsumers.Stock-outsarenogoodforasupplierasitaffectsthebrandandtheconsumercanmoveelsewhere.Ifthereisanexcessofdemand,theproducershavetogaugethenatureofdemandfirst(seasonal,increasingtrend)toreactinaswiftfashion,tocornerthemarketandretaintheexistingcustomers.Thestablestateofequilibriuminaneconomicsystemmakestheeconomyefficient,thesuppliersaremovingtheirgoodsandtheconsumersaregettingwhattheyaredemanding.Theonlypointworthnoting:thepointofequilibriumisever-elusiveandfluctuateslikeawildboarineachminutequantumoftime.EconomicsBasics–ThefreemarkethypothesisInaperfectfreemarket,foranygoodorservice—thetotalquantitysuppliedbythesellersandthetotalquantitydemandedbythebuyerswillreachastateofeconomicequilibriumovertime.Thingscloselyfollowthefreemarketparadigmiftwobasicassumptionsholdtrue:perfectcompetitionandabsenceof“unnecessary”governmentquotasandregulations.Perfectcompetitionassumesthatnosellerislargeenoughtoswaythenaturalmovementofthemarketowingtoitslargemarketshareandcashreserves,whichtoooftenbecomesthecaseforcorporationsinacapitalisticsystemwiththewherewithaltowipeoutsmallerplayers.Inthesecases,regulationstopreventmonopoliesandunfairpracticesbecomealltheimportanttoensurethatthemarketremainsefficient.Ontheotherhand,toomanygovernmentregulationsandquotas(pre-liberalizationIndiawasonthevergeofbankruptcy)hinderthenaturalprocesstowardsequilibriumandresultineasilyavoidableinefficienciesinthesystem.Howmuchgovernmentregulationistherightamountisaquestionwhichweareyettoanswerwithfullconfidence,butweknowforsurethatbothextremescanbereallybad!EconomicsBasics–Cost,efficiencyandscarcityGoingbythegeekydefinition,opportunitycostisthevalueofthenext-highest-valuedsubstituteuseofthatresource.ForinstanceyoumayforegogoingtothephysicsclassforasessionofLANgaming,buttheriskofnotunderstandingsubsequentlecturesandflunkingthesemesteristheopportunitycostyoushouldbeawareof.Everyentityhasadifferentpoint-of-viewregardingthisopportunitycostastheneedsandresourcesofentitieskeepshiftingwithtime.Economicefficiencyisthemeasureofoutp