Learning Objectives: The Economic Problem LO1: Understand the relevance of economics LO2: Define economics, microeconomics, and macroeconomics and understand the importance of the scientific method LO3: Realize that scarcity, choice, and opportunity cost are at the heart of economics and that efficiency is a cornerstone CHAPTER 1 1-1© 2012 McGraw-Hill Ryerson Limited

What is Economics? Positive Statement – Can be verified with empirical data Normative Statement – Based on a person’s beliefs or value system – Cannot be verified with data 1-2© 2012 McGraw-Hill Ryerson Limited LO2

Self-Test 1-3© 2012 McGraw-Hill Ryerson Limited Identify each of the following statements as either positive (P) or normative (N) a.The federal government’s budget this year is the largest in history. b.The national debt is at a manageable level and therefore is nothing to worry about. c.The price of gasoline is higher than it needs to be. d.Rising Canadian exports are creating many new jobs in the country. LO2

What is Economics? Economic Theory – Looks at how positive statements are related – Uses the scientific method: Set up a hypothesis Define terms, state assumptions Gather data to test hypothesis Accept, reject, or modify theory 1-4© 2012 McGraw-Hill Ryerson Limited LO2

What is Economics? Macroeconomics – How the major components of an economy interact – Unemployment, inflation, interest rates Microeconomics – Outcomes of decisions by people and firms – Supply and demand, costs of production, market structures 1-5© 2012 McGraw-Hill Ryerson Limited LO2

Self-Test 1-6© 2012 McGraw-Hill Ryerson Limited Identify which of the following topics would likely appear in a microeconomics course and which in a macroeconomics course. a.The price of iPods b.Unemployment rates c.The presence of monopolies d.The rate of economic growth LO2