Economics. Principles and applications by

Chapter 1

What is Economics ?

Overview

What is economics?
Definition, scarcity, and choice
The world of economics
Micro vs. Macro
Positive

Economics, Scarcity, and Choice

Economics
Study of choice under conditions of scarcity
Scarcity
Situation in

Scarcity and Individual Choice

Unlimited variety of scarcities, based on two basic

Scarcity and Individual Choice

Limitations force each of us to make choices
Economists

Scarcity and Social Choice

Society faces a scarcity of resources
Categories of resources:
Labor
Capital
Human

Scarcity and Economics

Problems studied in economics: the scarcity of resources—and the

Scarcity and Economics

Economists study the decisions made by households, firms, and

Microeconomics

Micro comes from the Greek word mikros, meaning “small”
Studies the behavior

Macroeconomics

Macro comes from the Greek word makros, meaning “large”
Studies the behavior

Positive and Normative Economics

Positive economics: how the economy works
Can be true

Why Economists Disagree

The difference of opinion may be positive in nature
Facts

Why Study Economics

To understand the world better
Global events and personal phenomena
To

Why Study Economics

To help prepare for other careers
A wide range of

The Methods of Economics

Use economic models to develop economic theories
Economic models

Economic Models: Assumptions and Conclusions

Two types of assumptions:
Simplifying assumptions
Essential features can

The Three Step Process

Economists follow the same three-step process to analyze

Math, Jargon, and Other Concerns…

Economic jargon
Special words that allow economists to

How to Study Economics

Economics must be studied actively, not passively
Active study
Reproduce

Math Review

Tables and graphs
Tables
Straight-line graphs
Curved lines
Linear equations
Lines and curves shift
Shifts vs.

Tables and Graphs

TABLE A.1 Advertising and Sales at Len & Harry’s

Straight-line Graphs

FIGURE A.1 A Graph of Advertising and Sales

Advertising
($1,000 per

Straight-line Graphs

Slope of a straight line =
Change in vertical variable

Curved Lines

FIGURE A.2 Measuring the Slope of a Curve

1. The slope

Linear Equations

Y = a+bX
a: vertical intercept
b: slope
Exercise: what is the linear

Linear Equations

Remember : Y= 18+3X
For example, how much expenses are

Linear Equations

0

a

b > 0

0

a > 0

FIGURE A.3 Straight Lines with Different

Linear Equations

0

a

b = 0

0

a = 0

FIGURE A.3 Straight Lines with Different

Linear Equations

0

a

b < 0

0

a < 0

FIGURE A.3 Straight Lines with Different

6

36

C''

C'

C

July

September

June

44

Line Shift

FIGURE A.4 Shifts in the Graph of Advertising and Sales

Curves Shift

FIGURE A.5 Shifts of Curved Lines

An increase in Z causes

Shifts vs. Movements Along a Line

Suppose Y is the dependent variable,

Practice Question 1

Practice Question 2