Chapter 1: Introduction The Study of Economics

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Chapter 1 Introduction The
Study of Economics

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The Study of Economics

• Economics -- The study of the production,
  allocation, and distribution of (limited)
  resources to most efficiently meet (unlimited)
  human wants and needs.

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Microeconomics Versus Macroeconomics

• Microeconomics -- The study of economic decisions
  of individuals and firms.
• Macroeconomics -- The study of economic decisions
  in the economy as a whole (aggregates or totals).

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Scarcity A Fundamental Economic Property

• Key Resources are finite or scarce, especially
  relative to human wants and needs.
• Resources
• -- money
• -- time
• -- environmental resources

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Scarcity and Opportunity Cost

• Opportunity Cost The cost of pursuing a given
  choice or decision, based upon the best
  alternative given up.
• Using scarce resources in
• everything we do.

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Economic Decisions Theories and Models

• Theory -- An assertion about the major causes of
  a given behavior, done in order to predict
  outcomes.
• Model -- A formalization of a theory, done to
  make concise predictions.

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The Role of Assumptions

• Theories and models make simplifying assumptions
• The assumptions emphasize the main causes without
  making the theory/model overly cumbersome.
• Evaluating a theory and model How closely do
  these assumptions approximate reality?