WHAT IS ECONOMICS? Introduction

Definition of Economics All economics questions arise because we want more than we can get. Our inability to satisfy all our wants is called scarcity. Scarcity arises because resources are limited.

Definition of Economics All economics questions arise because we want more than we can get. Our inability to satisfy all our wants is called scarcity. Scarcity arises because resources are limited. TThere is only so much oil that be produced each day. TThere is only so much food that can be grown each year. TThere are only 24 hours in day.

Economics is the social science that studies how society deals with scarcity.  What is the best use of limited resources?  How can we get more use from these resources?  Who should get these resources? Since resources are scarce, choices must be made how to best use those resources.  To use a resource for one activity means it cannot be used for another – a choice must be made.

Two Areas of Economics Economics can be split into two primary areas: Microeconomics  Study of the choices that individuals, households or businesses make when faced with scarcity.  Usually concerns issues surrounding efficiency and allocation of resources. Macroeconomics  Study of the performance of the national and global economy as a whole.  Usually concerns issues regarding growth and stability.

Economics As A Science Economics is a social science  Along with psychology and sociology Tries to discover how the economic world works It follows the general scientific method  Form a hypothesis, make observations, test the hypothesis, etc. Model Building  Used for understanding and forecasting  Example: The Supply & Demand Model  (Note: The overwhelming majority of the class is dedicated to learning the economic models)

Economics As A Science Economic models look at each piece “ceteris paribus”  Ceteris Paribus – “everything else held constant”  When using the models we imagine what would happen if only one factor changed and we hold the other factors constant.

Economics As A Science “ceteris paribus” example How much should Mike be making compared to the rest of the group? Wages Years of Education Years of Experience Location Eddie$40,00024Charlotte Alex$70,000410New York Dave$55,00056Salt Lake City Mike??????63Chicago

Economics As A Science “ceteris paribus” example How much should Mike be making compared to the rest of the group? Wages Years of Education Years of Experience Location Eddie$40,00044Charlotte Alex$70,000410Charlotte Dave$55,00046Charlotte Mike??????43Charlotte

Economics As A Science Economic models look at the “positive” world – not the “normative” world.  Positive Statements describe the world “as is.”  Unemployment is currently 8.6%  The national debt is currently 1.4 trillion dollars  Minimum wages cause some unemployment  Normative Statements describe the world “as it ought to be.”  8.6% unemployment is too high  1.4 trillion dollars of debt isn’t enough  Everyone needs to have at least a wage of $15 an hour