CHAPTER1 - CHAPTER 1 THE NATURE AND METHOD OF ECONOMICS...

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CHAPTER 1: THE NATURE AND METHOD OF ECONOMICS economics the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants economic perspective a viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions SCARCITY AND CHOICE - scarcity limits our options and necessitates that we make choices - “free” products may or may not be truly free to individuals; they are never free to society opportunity costs resources that could have been used in alternative production activities RATIONAL BEHAVIOR - human behavior reflects “rational self-interest” - individuals look for and pursue opportunities to increase their utility utility pleasure, happiness, or satisfaction - means that the same person may make different choices under different circumstances - means that choices will vary greatly among individuals - enables a person to achieve personal satisfaction, however it may be derived MARGINALISM: BENEFITS AND COSTS marginal analysis comparisons of marginal benefits and marginal costs - means “extra” or “additional” - the decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of forgoing something else - “too much” occurs when we obtain additional amounts of certain services even though their marginal costs exceed their marginal benefits o then we sacrifice alternative goods and services that are more valuable at the margin – the place where we consider the very last units of each ECONOMICS FOR CITIZENSHIP - a basic understanding of economics is essential for well-informed citizenship - most of today’s political problems have important economic aspects PROFESSIONAL AND PERSONAL APPLICATIONS - economics lays stress on precise, systematic analysis - helps students improve their analytical skills - helps people make sense of the everyday activity they observe around them - enable business managers and executives to increase profit o understand when to use new technology, when to merge with another firm, when to expand employment o the manager who understands the causes and consequences of recession
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(downturns in economy) or inflation (rising prices) can make more intelligent business decisions during those periods - helps consumers and workers make better buying and employment decisions - economics is mainly an academic subject - ultimately examines problems and decisions from the social, rather than the person, point of view - production, exchange, and consumption of goods and services are discussed from the viewpoint of society’s best interest ECONOMIC METHODOLOGY scientific method: observation of facts formulation of hypothesis testing of the explanation acceptance, rejection, or modification of hypothesis continued testing of hypothesis against facts - as favorable results accumulate, hypothesis evolves into a theory -
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