Definition of Economics
The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfactionof human materials wants.
Human wants are unlimited, but the means to satisfy the wants are limited.
Chapter 01 - The Nature and Method of Economics
Definition of Economics
The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction
of human materials wants.
Human wants are unlimited, but the means to satisfy the wants are limited.
The Economic Perspective
Scarcity and choice
Resources can only be used for one purpose at a time.
Scarcity requires that choices be made.
The cost of any good, service, or activity is the value of what must be given up to obtain it.(opportunity cost).
Rational Behavior
Rational self-interest entails making decisions to achieve maximum fulfillment of goals.
Different preferences and circumstances lead to different choices.
Rational self-interest is not the same as selfishness.
Marginalism:benefits and costs
Most decisions concern a change in current conditions; therefore the economic perspective is largely focused
on marginal analysis.
Each option considered weighs the marginal benefit against the marginal cost.
Whether the decision is personal or one made by business or government, the principle is the same.
The marginal cost of an action should not exceed its marginal benefits.
There is "no free lunch" and there can be "too much of a good thing."
Why Study Economics?
Economics for citizenship.
Most political problems have an economic aspect, whether it is balancing the budget, fighting over the tax
structure, welfare reform, international trade, or concern for the environment.
Both the voters and the elected officials can fulfill their role more effectively if they have an understanding of
economic principles.
Professional and personal applications
The study of economics helps to develop an individual's analytical skills and allows students to better predict
the logical consequences of their actions.
Economic principles enable business managers to make more intelligent decisions.
Economics can help individuals make better buying decisions, better employment choices, and better financial
investments.
Economics is however, mainly an academic, not a vocational subject.Its primary objective is to examine
problems and decisions from a social rather than personal point of view.It is not a series of "how to make
money" examples.
Economic Methodology
Economists use the scientific method to establish theories, laws, and principles.
The scientific method consists of:
The observation of facts (real data).
The formulations of explanations of cause and effect relationships (hypotheses) based upon the facts.
The testing of the hypotheses.
The acceptance, reject, or modification of the hypotheses.
The determination of a theory, law, principle, or model.
Theoretical economics: The systematic arranging of facts, interpretation of the facts, making generalizations.
Principles are used to explain and/or predict the behavior of individuals and institutions.
Terminology-Principles, laws, theories, and models are all terms that refer to generalizations about economic
behavior. They are used synonymously in the text, with custom or convenience governing the choice in each
particular case.
Generalization-Economic principles are expressed as the tendencies of the typical or average consumer,
worker, or business firm.
"Other things equal" or ceteris paribus assumption-In order to judge the effect one variable has upon another it
is necessary to hold other contributing factors constant. Natural scientists can test with much greater precision
than can economists. They have the advantage of controlled laboratory experiment. Economists must test
their theories using the real world as their laboratory.
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