Chapter 1: The Nature and Method of Economics
I. The Economic Perspective
a. Scarcity and Choice – unlimited wants and needs of people. There is no such thing as a free lunch, everything has a trade-off, limited resources forces decisions to be made, and this is the core of economics. When a decision is made, there is an opportunity cost that goes with it; it is what you lost in order to fulfill your utility. (Utility- wants) b. Rationalism - There is an assumption that humans will follow rational behavior in their decision making. (ex: IPod on sale) c. Marginalism is the idea that every decision has benefits and costs and the goal is to maximize benefits while minimizing costs. Is the resource worth it or not, or if it is profitable. (ex: hours spent studying = the grade you earn) II. Why Study Economics?
a. Citizenship – Economically intelligent people will make good economic decisions that benefit the society as a whole. b. Professional and personal applications – for example, budgets - you can visualize your opportunity cost so that you can see what you’re losing. III. Economic Methodology – Economists apply the scientific method to their work a. Theoretical Economics – What could be and what might be. The ideas that economists come up with, much like a biologist is a theorist. (ex: you know the heart but you cannot do a surgery on it) i. Terminology – Theories, laws, principles, standard science terminology ii. Generalizations – Economics is diverse because it relies on individuals. (ex: most people in the class like pizza, assumption-everyone is Clements likes pizza) iii. Ceteris paribus– You cannot account for all things at all times, so you assume that everything other than your variables is held constant. Also known as Other Things Equal Assumption. *We are making choices based on 2 cheatings: generalization and Ceteris...
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