Chapter 1 Economics Defined
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Editors Notes
A.
of Boise State.
B. 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
E. Outside Reading Is
economics a science?
Our
Free Internet Libraries
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Our
Free Internet Libraries
improve grades and careers.
4. Economic Model
1. A simplified representation of real-world economic activity
2. Requires Ceteris Paribus: Latin for holding other economic variables constant
3. Models may be quantities or qualitative
3. 3 Pitfalls
a. 3.1 Restrictive, unrealistic assumptions
b. 3.2 Omitted details
c. 3.3 Are economic models falsifiable?
3.3 Are economic models falsifiable?
4. Models such as the Production Possibility Curve chapter 2 and supplyy and demand, chapter 3,
explained in the next chapter provide a simplified description of how some aspect of an economy
works.
E. Economics Glossary from Amosweb
F. Economics The Library of Economics and Liberty has a concise economics Encyclopedia at the
bottom of the page.
G. Our Economics Learning Center has information for students, teachers, an professionals.
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)
H. Economic Report of the President gives the President's view on achieving these goals.
Telling Teachers about
these free learning materialsand our site http://www.textbooksfree.org/ might help lower the cost of textbooks.