Economics Chapter 1

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McConnell−Brue−Flynn: Microeconomics: Principles, Problems, and Policies, 18th Edition

I. Introduction to Economics and the Economy

1. Limits, Alternatives, and Choices

© The McGraw−Hill Companies, 2009

IN THIS CHAPTER YOU WILL LEARN: 1 The definition of economics and the features of the economic perspective. 2 The role of economic theory in economics. 3 The distinction between microeconomics and macroeconomics. 4 The categories of scarce resources and the nature of the economizing problem. 5 About production possibilities analysis, increasing opportunity costs, and economic growth. 6 (Appendix) About graphs, curves, and slopes as they relate to economics.

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Limits, Alternatives, and Choices
(An appendix on understanding graphs follows this chapter. If you need a quick review of this mathematical tool, you might benefit by reading the appendix first.) People’s wants are numerous and varied. Biologically, people need only air, water, food, clothing, and shelter. But in modern society people also desire goods and services that provide a more comfortable or affluent standard of living. We want bottled water, soft drinks, and fruit juices, not just water from the creek. We want salads, burgers, and pizzas, not just berries and nuts. We want jeans, suits, and coats, not just woven reeds. We want apartments, condominiums, or houses, not just mud huts. And, as the saying goes, “that is not the half of it.” We also want flat-panel TVs, Internet service, education, homeland security, cell phones, health care, and much more. Fortunately, society possesses productive resources, such as labor and managerial talent, tools and machinery, and land and mineral deposits. These resources, employed in the economic system (or simply the economy), help us produce goods and services that satisfy many of our economic wants. 3

McConnell−Brue−Flynn: Microeconomics: Principles, Problems, and Policies, 18th Edition

I. Introduction to Economics and the Economy

1. Limits, Alternatives, and Choices

© The McGraw−Hill Companies, 2009

ORIGIN OF THE IDEA
O 1.1 Origin of the term “Economics”

But the blunt reality is that our economic wants far exceed the productive capacity of our scarce (limited) resources. We are forced to make choices. This unyielding truth underlies the definition of economics, which is the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.

The Economic Perspective
Economists view things from a unique perspective. This economic perspective, or economic way of thinking, has several critical and closely interrelated features.

Scarcity and Choice
From our definition of economics, we can easily see why economists view the world through the lens of scarcity. Scarce economic resources mean limited goods and services. Scarcity restricts options and demands choices.

CONSIDER THIS . . . Free for All?
Free products are seemingly everywhere. Sellers offer free software, free cell phones, and free checking accounts. Dentists give out free toothbrushes. At state visitor centers, there are free brochures and maps. Does the presence of so many free products contradict the economist’s assertion “There is no free lunch”? No! Resources are used to produce each of these products, and because those resources have alternative uses, society gives up something else to get the “free” good. Where resources are used to produce goods or services, there is no free lunch. So why are these goods offered for free? In a word: marketing! Firms sometimes offer free products to entice people to try them, hoping they will then purchase those goods later. The free software may eventually entice you to buy the producer’s upgraded software. In other instances, the free brochures contain advertising for shops and restaurants, and that free e-mail program is filled with ads. In still other cases, the product is free only in conjunction with a larger...
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