1. The Nature and Method of Economics
Chapter One
People’s economic wants are numerous and varied. In our society, we purchase goods & services that are either a necessity or something that we simply want to have. Society has many productive resources (i.e. labor, tools, machinery, land, etc.) that are used to produce these goods & services. The problem is that our wants exceed the productive capacity of our limited resources.
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2. Economics
Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.
Numerous problems and issues are rooted in the challenge of using limited resources efficiently.
Even though this is a social studies class, you will find that your background in math & English will come in handy as well! Bring a calculator with you to class each day.
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3. Economic Perspective
Economists view things through a unique perspective:
This way of thinking has several critical and closely interrelated features.
Scarcity & choice
Rational behavior
Marginalism: benefits and costs
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4. Scarcity and Choice
Since human and property resources are scarce (limited), the goods and services we produce must also be limited.
Scarcity limits our options. As a result, we must make choices.
First…From our definition of economics, it is easy to see why economists consider scarcity as an important concept.
Because we can’t have it all, we must decide what we will have and what we must forgo.
At the core of economics is the idea that “there is no free lunch.” You may get treated to lunch, making it “free” to you, but there is a cost to someone. I.E. The company has to purchase labor & other resources to serve you.
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5. Rational behavior
Individuals will make different choices under different circumstances which will increase their utility (satisfaction).
Rational decisions may change as costs and benefits change.
2) You may switch to Pepsi when it is on sale.
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6. Marginal Analysis: Benefits & Costs
“marginal” – means extra, additional, or a change in.
Each decision made involves marginal benefits and costs.
As long as the marginal (additional) benefits exceeds the cost, you should pursue that choice.
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7. Why Study Economics? Economics for Citizenship
A basic understanding of economics is essential if you are to be a well-informed citizen.
Professional and Personal Applications
The study of economics helps you make sense of the everyday activity you observe.
2) Economics helps consumers and workers make better buying and employment decisions.
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8. Economic Goals Economic growth Full employment Economic efficiency
Price-level stability
Economic freedom
Equitable distribution of income
Economic security
Balance of trade
Produce more and better goods & services
Provide suitable jobs for all citizens who are willing and able to work
Achieve maximum fulfillment of wants using the available productive resources
Avoid large swings in the price level (avoid inflation or deflation)
Guarantee that businesses, workers, & consumers have a high degree of freedom in their economic activities.
Ensure that no group of citizens faces poverty while most others enjoy abundance.
Provide for those who are ill, disabled, laid off, aged, or otherwise unable to earn minimal levels of income
Seek a reasonable overall balance with the rest of the world in international trade and financial transactions
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9. Macroeconomics and Microeconomics
Study of the economy as a whole.
Microeconomics
Study of specific economic units. I.E. small segments of the economy (businesses, households, government)
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10. Graphs and Their Meaning
Graph- visual representation of the relationship between two variables (I.e. price and quantity sold).
Direct (positive) Relationship- Two variables change in the same directions.
Inverse (negative) Relationship- Two variables change in opposite directions.
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