The Nature and Method of Economics

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Chapter One
The Nature and Method of Economics

CHAPTER OVERVIEW

This chapter begins with a discussion of the meaning and importance of economics. In this first chapter, however, we will not plunge into problems and issues; instead we consider some important preliminaries. We first look at the economic perspective—how economists think about problems. Next, we state some of the benefits of studying economics. Then, we examine the specific methods economists use to examine economic behavior and the economy, distinguishing between macroeconomics and microeconomics. Finally, the problems, limitations, and pitfalls that hinder sound economic reasoning are examined.

The Appendix to Chapter 1 provides an important introduction to graphical analysis. While this will be review material for most students, for some this may be new. Instructors are strongly urged to confirm that their students understand this section before proceeding. The software supplement can provide effective remedial help for those students who are not familiar with graphical analysis.

WHAT’S NEW

The discussion of “rational behavior” has been expanded and now includes introduction of the term “utility” (introduced in chapter two of the 15th edition). “Utility” appears in bold and is included in the end-of-chapter “terms and concepts” list The Origin of the Idea web-button on “utility” (2.1 from the previous edition) has been moved to the web material for this chapter and renumbered to 1.2.

“Consider This” boxes have been added to the text. These provide students with analogies, anecdotes, and insights to facilitate connection with the material. This material was introduced in the previous edition as web-button “Analogies, Anecdotes, and Insights” (AAI). Other AAI pieces have been renamed in this edition as “Concept Illustrations” and appear only in the instructors’ manual as suggestions for approaching certain material and helping students overcome common stumbling blocks.

Minor revisions include adding “happiness” to “pleasure” and “satisfaction” in the discussion of utility, and changing the heading “Pitfalls to Objective Thinking” to “Pitfalls to Sound Reasoning.”

New study questions have been added both for the chapter and the appendix.

A new Interactive Graph web-button (1.1) on curves and slopes has been added to the appendix.

INSTRUCTIONAL OBJECTIVES

After completing this chapter, students should be able to

1. Define economics.

2. Describe the “economic way of thinking,” including definitions of rational behavior, utility, marginal costs, marginal benefits and how these concepts may be used in decision-making.

3. State some important reasons for studying economics.

4. Explain how economists use the scientific method to formulate economic principles.

5. Explain the importance of ceteris paribus in formulating economic principles.

6. Explain the steps used by policy makers.

7. List eight economic goals and give examples of conflicting and complementary goals.

8. Differentiate between micro- and macroeconomics.

9. Differentiate between positive and normative economics.

10. Explain and give examples of the fallacy of composition and post hoc fallacy.

11. Explain and illustrate a direct relationship between two variables, and define and identify a positive sloping curve.

12. Explain and illustrate an inverse relationship between two variables, and define and identify a negative slope.

13. Identify independent and dependent variables.

14. Define and identify terms and concepts listed at the end of chapter and appendix.

COMMENTS AND TEACHING SUGGESTIONS

1. This chapter and related classroom activities will set the tone for the rest of the course. The methods used in the initial class meetings set the expectations and attitudes of the students. Making dramatic changes later can be confusing and the outcome less successful than desired. Please...
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