Instructor’s Manual to accompany Economics: Theory & Practice, Tenth Edition
Chapter 1
Introduction to Economics
CHAPTER OBJECTIVES
1. To define economics and introduce the scarcity and choice problem which underlies
economics.
2. To explore opportunity cost, efficiency, and equity and their relationship to scarcity.
3. To identify the four factors of production and the income return to each type of factor.
4. To differentiate between economic theory and economic policy, and to introduce the tools
economists use to express theories and policies.
5. To use the production possibilities model to illustrate and explain the basic problem of
scarcity.
6. To explain (in an appendix) how to construct a graph and interpret the illustrated
relationship.
STUDY ORGANIZER
1. Understand the nature and basis of the scarcity problem, and how scarcity is related to the
definition of economics.
2. Recognize the decisions that must be made by individuals, businesses, and societies
because of scarcity.
3. Know the role of value judgments in economic decision-making.
4. Understand and give examples of opportunity costs.
5. Distinguish between efficiency and equity, and the relationship of each to scarcity.
6. Identify the four factors of production and the income return to each factor.
7. Understand why economists say resources are scarce when so many resources are
available in large numbers.
8. Distinguish between economic theory and economic policy.
9. Identify and explain the importance of each of the four elements that are the framework
for building an economic model.
10. Explain the role of value judgments in economic policy.
Copyright © 2013 John Wiley & Sons, Inc.
,Chapter 1 Economics: Theory & Practice, 10th Edition
11. Construct and read a graph, and differentiate between a direct and inverse relationship,
illustrating each graphically.
12. Understand how models are used to develop economic theories.
13. Graph and interpret the meaning of a production possibilities curve.
14. Illustrate unemployment and economic growth on a production possibilities curve.
15. Distinguish between macroeconomics and microeconomics.
Appendix
16. Know how to assign numbers to the axes of a graph, and plot data points.
17. Understand how the choice of spacing for numbers on an axis can affect the appearance
of data in a graph.
TEACHING CHAPTER ONE
In developing the material in Chapter One, our primary objective was to familiarize the student with
the basic economic problem of scarcity and to provide the definitions and tools that are common to
the study of economics. In writing this chapter, as well as the other chapters, one of our objectives
was to present the material in a manner that would capture the student's interest so that he or she will
look forward to further reading. To partly fulfill the objective of maintaining student interest, and to
encourage active use of the text, the applications, the Up For Debate, Test Your Understanding
review, and Critical Thinking case in this chapter were designed to raise a student's awareness of the
breadth and timeliness of economic thinking to a point where the corresponding materials in the
remaining chapters will not be skipped. An instructor might encourage the reading of these
materials, which were selected to complement the basic text, by integrating them into lecture notes
and/or class discussions and/or examinations as soon as possible.
In terms of teaching specific material from this chapter, an instructor might want to stress
several key concepts. These include: the connection between scarcity and choice; the concept of
opportunity cost; the role of value judgments in choice and decision making; and the difference
between economic theory and policy. In regard to the role of value judgments in economics,
Discussion Question 2 provides an excellent source of discussion material.
The use of graphs in presenting economic relationships is discussed in this chapter. Graphs
are used in building a production possibilities model, and the appendix to the chapter is on graphing.
The Test Your Understanding review allows students to practice interpreting a graph in a production
possibilities example. We highly recommend that the appendix be assigned and taught, and that the
Test Your Understanding review be stressed. The Study Guide exercises for Chapter One are also
very useful in developing graphing skills.
2 Copyright © 2013 John Wiley & Sons, Inc.
,Economics: Theory & Practice, 10th Edition Chapter 1
TEACHING OUTLINE
The following outline is based on the major sections, sub-sections, and applications in this
chapter. It indicates where review questions, discussion questions, Study Guide exercises, Test
Your Understanding, Applications, Critical Thinking Case, and Up For Debate might best be
used.
I. WHAT IS ECONOMICS?
A. Economics and Scarcity
B. Scarcity and Choice
*Discussion Questions 2, 3
*Critical Thinking Case 1, “Rethinking Medical Care”
1. Opportunity Cost
*Review Question 1
*Discussion Question 7
2. Application 1.1, "To Work or not to Work?"
C. Efficiency and Equity
*Discussion Questions 4, 5
II. FACTORS OF PRODUCTION
A. Factors and Income
*Review Question 2
B. Scarce Resources
*Discussion Question 1
*Application 1.2, “Does Money Buy Happiness?”
III. ECONOMIC THEORY AND POLICY
*Review Question 4
A. Economic Theory
*Review Question 5
1. Variables
2. Assumptions
3. Data Collection and Analysis
4. Conclusions
a. Application 1.3, “Ok, What Are They?”
B. Economic Policy
Copyright © 2013 John Wiley & Sons, Inc. 3
, Chapter 1 Economics: Theory & Practice, 10th Edition
1. UP FOR DEBATE, "Should St. Louis County, Missouri, Impose Mandatory
Trash Pickup and Recycling?"
IV. TOOLS OF THE ECONOMIST
A. Words, Graphs, and Mathematical Equations
V. SCARCITY, MODEL BUILDING, AND GRAPHS
*Study Guide Exercise: Production Possibilities 1
A. Modeling Scarcity
*Review Question 6
B. Interpreting the Model
*Review Questions 7, 8
*Discussion Question 6
1. Test Your Understanding: Production Possibilities
VI. MACROECONOMICS AND MICROECONOMICS
*Review Question 10.
VII. APPENDIX TO CHAPTER ONE: GRAPHING
*Review Question 9
*Study Guide Exercises: Graphing 1, 2
A. Constructing a Graph
B. Direct and Inverse Relationships
*Review Question 3
SUGGESTED ANSWERS TO REVIEW QUESTIONS
1. What are the definition of and the root of the study of economics? How does a
combination of scarce resources and unlimited wants force people to make economic
decisions? How are value judgments and opportunity costs important in the making of
these decisions?
In the definition of economics, the resources needed to produce goods and services are scarce and
people’s wants for these goods and services are unlimited. Scarcity means there are not enough
resources, goods, and services to satisfy the wants and needs of all individuals, families, and
societies.
Value judgments affect the relative importance a person assigns to an action or alternative.
Opportunity costs measure the costs of a purchase or a decision in terms of the forgone
alternative that is given up to make the purchase or decision.
4 Copyright © 2013 John Wiley & Sons, Inc.
Chapter 1
Introduction to Economics
CHAPTER OBJECTIVES
1. To define economics and introduce the scarcity and choice problem which underlies
economics.
2. To explore opportunity cost, efficiency, and equity and their relationship to scarcity.
3. To identify the four factors of production and the income return to each type of factor.
4. To differentiate between economic theory and economic policy, and to introduce the tools
economists use to express theories and policies.
5. To use the production possibilities model to illustrate and explain the basic problem of
scarcity.
6. To explain (in an appendix) how to construct a graph and interpret the illustrated
relationship.
STUDY ORGANIZER
1. Understand the nature and basis of the scarcity problem, and how scarcity is related to the
definition of economics.
2. Recognize the decisions that must be made by individuals, businesses, and societies
because of scarcity.
3. Know the role of value judgments in economic decision-making.
4. Understand and give examples of opportunity costs.
5. Distinguish between efficiency and equity, and the relationship of each to scarcity.
6. Identify the four factors of production and the income return to each factor.
7. Understand why economists say resources are scarce when so many resources are
available in large numbers.
8. Distinguish between economic theory and economic policy.
9. Identify and explain the importance of each of the four elements that are the framework
for building an economic model.
10. Explain the role of value judgments in economic policy.
Copyright © 2013 John Wiley & Sons, Inc.
,Chapter 1 Economics: Theory & Practice, 10th Edition
11. Construct and read a graph, and differentiate between a direct and inverse relationship,
illustrating each graphically.
12. Understand how models are used to develop economic theories.
13. Graph and interpret the meaning of a production possibilities curve.
14. Illustrate unemployment and economic growth on a production possibilities curve.
15. Distinguish between macroeconomics and microeconomics.
Appendix
16. Know how to assign numbers to the axes of a graph, and plot data points.
17. Understand how the choice of spacing for numbers on an axis can affect the appearance
of data in a graph.
TEACHING CHAPTER ONE
In developing the material in Chapter One, our primary objective was to familiarize the student with
the basic economic problem of scarcity and to provide the definitions and tools that are common to
the study of economics. In writing this chapter, as well as the other chapters, one of our objectives
was to present the material in a manner that would capture the student's interest so that he or she will
look forward to further reading. To partly fulfill the objective of maintaining student interest, and to
encourage active use of the text, the applications, the Up For Debate, Test Your Understanding
review, and Critical Thinking case in this chapter were designed to raise a student's awareness of the
breadth and timeliness of economic thinking to a point where the corresponding materials in the
remaining chapters will not be skipped. An instructor might encourage the reading of these
materials, which were selected to complement the basic text, by integrating them into lecture notes
and/or class discussions and/or examinations as soon as possible.
In terms of teaching specific material from this chapter, an instructor might want to stress
several key concepts. These include: the connection between scarcity and choice; the concept of
opportunity cost; the role of value judgments in choice and decision making; and the difference
between economic theory and policy. In regard to the role of value judgments in economics,
Discussion Question 2 provides an excellent source of discussion material.
The use of graphs in presenting economic relationships is discussed in this chapter. Graphs
are used in building a production possibilities model, and the appendix to the chapter is on graphing.
The Test Your Understanding review allows students to practice interpreting a graph in a production
possibilities example. We highly recommend that the appendix be assigned and taught, and that the
Test Your Understanding review be stressed. The Study Guide exercises for Chapter One are also
very useful in developing graphing skills.
2 Copyright © 2013 John Wiley & Sons, Inc.
,Economics: Theory & Practice, 10th Edition Chapter 1
TEACHING OUTLINE
The following outline is based on the major sections, sub-sections, and applications in this
chapter. It indicates where review questions, discussion questions, Study Guide exercises, Test
Your Understanding, Applications, Critical Thinking Case, and Up For Debate might best be
used.
I. WHAT IS ECONOMICS?
A. Economics and Scarcity
B. Scarcity and Choice
*Discussion Questions 2, 3
*Critical Thinking Case 1, “Rethinking Medical Care”
1. Opportunity Cost
*Review Question 1
*Discussion Question 7
2. Application 1.1, "To Work or not to Work?"
C. Efficiency and Equity
*Discussion Questions 4, 5
II. FACTORS OF PRODUCTION
A. Factors and Income
*Review Question 2
B. Scarce Resources
*Discussion Question 1
*Application 1.2, “Does Money Buy Happiness?”
III. ECONOMIC THEORY AND POLICY
*Review Question 4
A. Economic Theory
*Review Question 5
1. Variables
2. Assumptions
3. Data Collection and Analysis
4. Conclusions
a. Application 1.3, “Ok, What Are They?”
B. Economic Policy
Copyright © 2013 John Wiley & Sons, Inc. 3
, Chapter 1 Economics: Theory & Practice, 10th Edition
1. UP FOR DEBATE, "Should St. Louis County, Missouri, Impose Mandatory
Trash Pickup and Recycling?"
IV. TOOLS OF THE ECONOMIST
A. Words, Graphs, and Mathematical Equations
V. SCARCITY, MODEL BUILDING, AND GRAPHS
*Study Guide Exercise: Production Possibilities 1
A. Modeling Scarcity
*Review Question 6
B. Interpreting the Model
*Review Questions 7, 8
*Discussion Question 6
1. Test Your Understanding: Production Possibilities
VI. MACROECONOMICS AND MICROECONOMICS
*Review Question 10.
VII. APPENDIX TO CHAPTER ONE: GRAPHING
*Review Question 9
*Study Guide Exercises: Graphing 1, 2
A. Constructing a Graph
B. Direct and Inverse Relationships
*Review Question 3
SUGGESTED ANSWERS TO REVIEW QUESTIONS
1. What are the definition of and the root of the study of economics? How does a
combination of scarce resources and unlimited wants force people to make economic
decisions? How are value judgments and opportunity costs important in the making of
these decisions?
In the definition of economics, the resources needed to produce goods and services are scarce and
people’s wants for these goods and services are unlimited. Scarcity means there are not enough
resources, goods, and services to satisfy the wants and needs of all individuals, families, and
societies.
Value judgments affect the relative importance a person assigns to an action or alternative.
Opportunity costs measure the costs of a purchase or a decision in terms of the forgone
alternative that is given up to make the purchase or decision.
4 Copyright © 2013 John Wiley & Sons, Inc.
