Chapter 1 Economics Defined

3 Free Business Book Summaries
Including New York Times Bestsellers

Editors Notes
Math Review is a short review of basic dynamic math skills for economics from R. Larry Reynolds 
          of Boise State.

. Our Current Events Internet Library has an interesting economics section.

 I. Basic Terms
A. Economics is the social science concerned with the use of scarce resources like land and labor
          to fulfill unlimited human wants.
     B. Resources are the inputs, want satisfaction is the output
     C. Key Concepts
         1. Scarcity of resources results in the need for choices by participants.
         2  Participants, buyers and sellers, exhibit purposeful behavior to enhance their own rational self interest.
         3. Marginal analysis where the change in benefit received is balanced with the change in cost is a common
             purposeful behavior.
         4. Fallacy of composition applying to the whole that which is true for a part without adequate proof. 1 and 3
             are odd numbers, so four is odd number. 
     D. Economic methodology 
          1. Positive economics 
              a. What something is 
              b. Objective, can be measured
              c. Example: measuring disposable personal income which is an individual's salary after taxes
          2. Normative economics
              a. What something ought to be 
              b. Subjective, difficult to measure 
              c. Requires value judgments by citizens, Political Action Committees (PAC's), politicians, economists, etc.
              d. Examples: should the minimum wage be increased, should defense spending increase and social 
                 spending be lowered
        3. Descriptive Economics
            a. Looking at the real-world to develop Economic Theory
            b. Economic Theory
                1. Generalizations concerning economic behavior based upon real-world observations, empirical by nature
                2. Economic theories are objective "positive economics"
                3. Assumes behavior is rational and economic (self-serving)
                4. Example: as the price of a product increases, consumers tend to buy less
            c. Economic Policy
                1. Application of economic theory to solve economic problems
                2. Economic policies are subjective, "normative economics".
                3. How society makes economic choices such as in the 1980's when
                    a. spending for the elderly (Social Security) increased 
                    b. spending for children (Head Start) decreased 1234

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   E.  Economic Model
1. Simplified generalizations tp represent of real-world economic activity
        2. Requires Ceteris Paribus: Latin for holding other economic variables constant. See
CeterisParibus Trap
        3. Models may be quantities or qualitative  
Three Pitfalls to model analysis 
a. 3.1 Restrictive, unrealistic assumptions 
b. 3.2 Omitted details  
c.  3.3 Are economic models falsifiable?
        5. Model representations are not always correct
a. Are economic models falsifiable?
b. Pfleiderer on The Misue of Economic Models one hour podcast

      c. Models such as the Production Possibility Curve chapter 2 and supply and demand, chapter 3,
                explained in the next chapter provide a simplified description of how some aspect of an economy works.
d. Beware-of-economic-textbooks
 G. Sundry Materials
1. Economics Glossary from Amosweb
 2. Economics The Library of Economics and Liberty has a concise economics Encyclopedia at the 
          bottom of the page.
3. Our Economics Learning Center has information for students, teachers, an professionals
4.  Video Review 9.08 Video
. Outside Reading
          a. Is economics a science?  
          b. Economics is more like history than physics

II. Economic goals of the United States
 A. Economic growth
     B. Full employment of all economic resources
     C. Price stability (low inflation)
     D. Positive balance of payments (international flow of dollars)
     E. Economic freedom
     F. Equitable distribution of income
    G. Economic security (if you have A through F, you have G)
Economic Report of the President gives the President's view on achieving these goals.

Telling Teachers about these free learning materials
and our site might help lower the cost of textbooks.


III. The study of economics is divided into two disciplines.

is the study of  total economic activity.

is the study of individual segments of the economy.

Macro and Micro are Applied as Follows

Macro Activity Micro Activity Schools of Economic Thought and Methodology
1. Inflation rate 1. A product's price Econometricians
2. Economic growth 2. Pollution Behavioral Economists
3. Total employment 3. Poverty International Economics
4. The  business cycle 4. A competitive market Labor Economics
2012 AP Econ Videos- This is Macro   Public Economics
1  Wiki explanation is extensive, for now, 
the first few paragraphs are sufficient.

2 Wiki explanation is extensive, for now, the first paragraph is sufficient.

Financial Economics

Chapter 1 Class  Discussion Questions

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Chapter 1 Homework Questions

Next Chapter  Economizing Scarce Resources   

Table of Contents

Economics Internet Library