Economics Unit 1: Individual, Business, & Government Choices Lesson 3: Tools of Economists

What Do Economists Do? Economists study how people make choices Then gather facts, organize, analyze, and interpret data – to understand how and why people behave a certain way Develop theories, laws, & principles to solve economic problems Predict possible outcomes of future decisions

Looking at the Whole: Macroeconomics Macroeconomics – the study of the behavior of the economy as a whole & how major economic sectors (industry & government) interact Big economic picture – national or global perspective Concerned w/large scale economic activity – GDP, unemployment rate, inflation, trade balance

Looking at the Parts: Microeconomics Microeconomics – study of specific factors in the economy such as price, costs, profit, competition, & consumer behavior Parts within the big picture Concerned with behavior of individual players within an economy – especially what goes on in the marketplace

Examining What Is: Positive Economics Both kinds of economists spend most of their time studying positive economics – the way things are Goal – to increase knowledge of how economy works by describing economic behavior as it is – not as someone might like it to be Deals with questions of fact – can be tested against reality

Exploring What Ought to Be: Normative Economics Normative economics – what ought to be Brings ethics & value judgments to bear on economic issues – asks what is fair or good Ask questions that can’t be answered by facts alone Ex. Should the rich be taxed more than to improve housing for the poor? Should the government spend more on education? No right or wrong answers – depends on society’s values

Economist’s Tool Kit Statistics, Tables, & Graphs Economists collect & analyze a wide array of statistics in their investigations Macro – use statistics to show if economy is creating jobs Micro – use statistics on gas and hotel sales to show relationship between gas prices and vacation plans Both organize their statistics using tables & graphs

Economic Models Economic model – a simplified representation of a complex activity, system, or problem (Fig 1.1 on page 12) Models are based on economic theory Can be explained in words, graphs, mathematical equations, or computer programs If theory is sound then – model may help explain why things are as they are or help predict future economic activity