የ 9ኛ ክፍል ኢኮኖሚክስ

በአማረኛ እና በእንግሊዝኛ
1.1 Meaning of Economics
Definition of Economics
• The term economics is originally derived from the ancient Greek
word oikonomia, meaning the management of a family or a household
('household management'. This reveals that the subject of economics
was first studied in ancient Greece.
• Economics is a branch of social sciences. Economics is an important
discipline, and its prominence has increased in recent years in
response to worldwide economic problems.
• Poverty, unemployment, inflation, recession, etc., are worldwide
problems. In order to understand and find solutions to such problems,
an in-depth knowledge of economics is essential.
Cont.
• The definition of economics has developed through time.
• Economic theory has advanced over time, and different themes have
gradually been included in the field.

• There is no completed definition of economics yet, and the definition

is essentially under improvement in areas such as the wealth
definition, the welfare definition, and the scarcity definition.
• Based on the above considerations, economics can be defined as
follows.
• Economics is a branch of social science that studies the
efficient allocation of scarce resources so as to attain the
maximum fulfillment of human needs.
• As a science of choice, economics studies how people choose to
use scarce or limited productive resources (land, labor,
equipment, technical knowledge, etc.) to produce various
commodities.
The following statements are derived from the above definition
of economics:
• Economics studies about scarce resources;
• It studies about allocation of resources;
• Allocation of resources should be efficient;
• Human needs are unlimited.
• The objective of economics is to study how to satisfy the
unlimited human needs up to the maximum possible degree
through allocating the scarce resources efficiently.
The Nature of Economics
• The lack of uniformity in defining economics emanates from the
shifting views about the subject matter over time. Some
economists consider economics as a ‘science’ while others
consider it an “art.”
Economics as a Science
• Science produces a systematic and organized body of knowledge
that links causes and effects. This knowledge can be regarded as
the knowledge of “what is”.
• In economics, several facts are systematically collected,
classified, analyzed, and interpreted to make predictions about the
future. In this sense, economics could be considered a science.
 Economics as an Art
• One of the important definitions of art is a technique or a way of
doing or achieving something.
• When dealing with problems such as unemployment, poverty,
and inflation, economics provides principles and methods
through which these problems can be solved.
• Hence, economics extensively examines the nature and causes
of economic problems and sets the procedures for finding their
solutions. From this perspective, we can consider economics as
an art.
1.2 Branches of Economics
• The field and scope of economics is growing rapidly and has
come to encompass a wide range of themes. Accordingly,
different new branches of the subject have emerged over
time.
• Some of these branches are: development economics,
environmental economics, industrial economics,
international economics, labor economics, mathematical
economics, monetary economics, welfare economics,
resource economics, behavioral economics, experimental
economics, health economics, etc.
• However, the foundation of modern economics rests on two
of its major branches, namely, microeconomics and
macroeconomics.
 Microeconomics
• Microeconomics is concerned with the economic behavior of
individual decision making units such as households, firms, and
governments and their interactions and organizations through
markets and industries.
• In other words, it deals with how households and firms make
decisions and how they interact in specific markets.
• For example, the economic activities of a consumer, a producer, a
firm or an industry, the income of individuals, the determination
of prices of various products and factors of production, etc. fall
under the scope of microeconomics.
• The fundamental problem of microeconomics is associated with
resource allocation or the problem of price determination.
Macroeconomics
Macroeconomics is a branch of economics that deals with the
effects and consequences of the aggregate behavior of all
decision-making units in an economy. In other words, it
examines the interrelations among various aggregate
economic variables.
For example, total employment, total output, national
income, total investment, total consumption, etc. in an
economy.
In general, macroeconomics investigates the interrelationships
of numerous aggregate economic variables, as well as their
determination and the causes of their fluctuations over time.
The fundamental problem of macroeconomics is associated
with full employment of economic resources.
 Difference Between Microeconomics and Macroeconomics
• Microeconomics is the study of individual decision-making units
of an economy, like individual households and business firms. In
contrast, macroeconomics is the study of an economy as a
whole, and its focus is the study of broad, economy-wide
aggregates.
• For example, when we study the price determination of a
commodity in a market, our study is micro-analysis and is treated
by microeconomics, but if we study the trend of the general
price level of commodities over time in a country, our study is
macro analysis and is treated by macroeconomics. Note that
both microeconomics and macroeconomics are complementary
to each other. In other words, macroeconomics cannot be studied
independently of microeconomics.
Table 1.1 Main differences between
microeconomics and macroeconomics
1.3.1 Methods of Studying Economics
The fundamental objective of economics, like any science, is
the establishment of valid generalizations about certain
aspects of human behavior.
Those generalizations are known as theories. A theory is a
simplified picture of reality.
Economic theory provides the basis for economic analysis,
which uses logical reasoning.
There are two methods of logical reasoning, namely,
deductive and inductive methods.
 Deductive Method
• The deductive method proceeds from general to particular.
It involves reasoning from certain principles to the analysis of
specific facts.
• In effect, it enables one to arrive at a particular conclusion
starting from a general statement. The conclusions are then
verified against observed facts.
• Example: man is mortal. Abebe is a man. Therefore, Abebe
is mortal.
 Inductive Method
• The inductive method is a process of reasoning from a part
to the whole. This means it involves reasoning from the
particular to the general or from the individual to the
general.
• In this method, economists approach problems of science
from a practical angle, reducing the gulf between theory and
practice.
• The inductive method develops economic theories on the
basis of observations and experiments. In this method,
comprehensive data about the prevailing economic
conditions is collected. Then, an attempt is made to arrive at
a hypothesis based on the observations and the collected data.
Cont.
• Example: During the harvest period, one may observe that
the prices of grains decrease.
• This may be associated with an increase in the supply of
grain at that time of the year.
• From this observation, a generalization can be made:
“keeping other factors constant, an increase in supply
leads to a fall in prices.”
 Cont.
• Note that deductive and inductive methods are
complementary, i.e. one supports the other.
• They are not competing methods. Induction and
deduction always complement each other in reasoning,
but proper induction is not necessary for the truth of
deduction.
• Induction generates general conclusions from specific
instances, whereas deduction generates knowledge of
specific instances from general knowledge.
1.3.2 Approaches of Studying Economics
• Economics can be analyzed from the point of view of two
perspectives, namely, positive economics and normative economics.
• Positive economics is like a science that deals with knowledge and
facts, while normative economics entails value judgment in
applying the knowledge to solve problems.
• Positive economics is concerned with the analysis of facts and
attempts to describe the world as it is. It tries to answer the
questions: what is; what was; or what will be?
• It does not judge a system as good or bad, better or worse.
Examples:

1. The number of secondary schools in Ethiopia is increasing.

2. The current inflation rate in Ethiopia is 12 percent.
Both of the above statements are known as “positive
statements.”
These statements are concerned with real facts and
information.
Any disagreement on positive statements can be cleared
up with reference to the facts.
 Cont.
• Normative economics is concerned with questions such as,
“what the economy ought to be?” Or what the economy should
be?
• It evaluates the desirability of alternative outcomes based on
one’s value judgments about what is good and what is bad.
• In this case, since normative economics is loaded with value
judgments, what is good for an individual may not be good for
another.
• Normative analysis is a matter of opinion that cannot be
proved or disproved with reference to facts. As a result, any
disagreement on a normative statement can be resolved through
voting.
 Examples:

1.The government should introduce school feeding programmes

in all schools.

2. There should be government intervention in the economy,

whenever necessary.
 1.4 Decision Making Units
• An economy is divided into different sections. These sections
are sometimes known as decision-making units of the
economy.
• Customarily, they are described as economic agents. The basic
decision-making units of an economy are households, business
firms, and the government.
• We discuss each of these decision-making units of an economy
as follows.
 1. Households

Households are the chief owners of factors of production, which encompass

land, labor, capital, and entrepreneurship.

They sell the services of these factors (termed “factor service”) to producers
and, in return, receive their income in the form of rent, wages, interest, and
profit.

They spend an enormous portion of their income on purchasing goods and

services from the producers.

Nonetheless, they save part of their income and also pay taxes to the government
out of their income.
2. Business Firms
• In economics, we use the terms “business firms” and
“producers” alternately.
• Firms hire the services of factors of production from
households to produce commodities that they sell to
households, to other firms, to the government, or to other
countries.
• Firms are the principal buyers of factors of production,
and they are the leading producers of commodities.
• Business firms consist of both private and government
enterprises.