WHAT IS ECONOMICS?
Economics, Scarcity, and Choice Scarcity and Individual Choice Scarcity and Social Choice Scarcity and Economics The World of Economics Microeconomics and Macroeconomics Positive and Normative Economics Why Study Economics? To Understand the World Better To Gain Self-Confidence To Achieve Social Change To Help Prepare for Other Careers To Become an Economist The Methods of Economics The Art of Building Economic Models Assumptions and Conclusions The Four-Step Process Math, Jargon, and Other Concerns . . . How to Study Economics Economics The study of choice under conditions of scarcity.
conomics. The word conjures up all sorts of images: manic stock traders on Wall Street, an economic summit meeting in a European capital, a somber television news anchor announcing good or bad news about the economy. . . . You probably hear about economics several times each day. What exactly is economics? First, economics is a social science, so it seeks to explain something about society. In this sense, it has something in common with psychology, sociology, and political science. But economics is different from these other social sciences, because of what economists study and how they study it. Economists ask fundamentally different questions, and they answer them using tools that other social scientists find rather exotic.
ECONOMICS, SCARCITY, AND CHOICE
A good definition of economics, which stresses the difference between economics and other social sciences, is the following: Economics is the study of choice under conditions of scarcity. This definition may appear strange to you. Where are the familiar words we ordinarily associate with economics: “money,” “stocks and bonds,” “prices,” “budgets,” . . .? As you will soon see, economics deals with all of these things and more. But first, let’s take a closer look at two important ideas in this definition: scarcity and choice.
SCARCITY AND INDIVIDUAL CHOICE
Think for a moment about your own life—your daily activities, the possessions you enjoy, the surroundings in which you live. Is there anything you don’t have right now that you’d like to have? Anything that you already have but that you would like more of? If your answer is “no,” congratulations! Either you are well advanced on the path of Zen self-denial, or else you are a close relative of Bill Gates. The rest of us, however, feel the pinch of limits to our material standard of living. This simple truth is at the very core of economics. It can be restated this way: We all face the problem of scarcity.
Scarcity A situation in which the amount of something available is insufficient to satisfy the desire for it.
Chapter 1 What Is Economics?
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At first glance, it may seem that you suffer from an infinite variety of scarcities. There are so many things you might like to have right now—a larger room or apartment, a new car, more clothes . . . the list is endless. But a little reflection suggests that your limited ability to satisfy these desires is based on two other, more basic limitations: scarce time and scarce spending power. As individuals, we face a scarcity of time and spending power. Given more of either, we could each have more of the goods and services that we desire. The scarcity of spending power is no doubt familiar to you. We’ve all wished for higher incomes so that we could afford to buy more of the things we want. But the scarcity of time is equally important. So many of the activities we enjoy—seeing a movie, taking a vacation, making a phone call—require time as well as money. Just as we have limited spending power, we also have a limited number of hours in each day to satisfy our desires. Because of the...