Ch01 - CHAPTER 1 What Is Economics After studying this...

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What Is Economics? CHAPTER 1
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After studying this chapter you will be able to Define economics and distinguish between microeconomics and macroeconomics Explain the two big questions of economics Explain the key ideas that define the economic way of thinking Explain how economists go about their work as social scientists
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Understanding Our Changing World You are studying economics at a time of enormous change. Much of the change is for the better—the information age and all the benefits that it brings. But some of the change is for the worse—terrorism, natural disasters, and recession that have devastated many of our lives. Your economics course will help you to understand the powerful forces that are shaping and changing our world.
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Definition of Economics All economic questions arise because we want more than we can get. Our inability to satisfy all our wants is called scarcity . Because we face scarcity, we must make choices . The choices we make depend on the incentives we face. An incentive is a reward that encourages an action or a penalty that discourages an action.
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Definition of Economics Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.
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Definition of Economics Microeconomics Microeconomics is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. Macroeconomics Macroeconomics is the study of the performance of the national and global economies.
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Two Big Economic Questions Two big questions summarize the scope of economics: How do choices end up determining what , how , and for whom goods and services get produced? When do choices made in the pursuit of self-interest also promote the social interest ?
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Two Big Economic Questions What, How, and For Whom? Goods and services are the objects that people value and produce to satisfy human wants. What? What we produce changes over time. Seventy years ago, almost 25 percent of Americans worked on farms. Today that number is 3 percent. Seventy years ago, 45 percent of Americans produced services. Today, almost 80 percent of Americans have service jobs.
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Two Big Economic Questions Figure 1.1 shows the trends in what the U.S. economy has produced over the past 70 years. It shows the decline of employment in agriculture and in mining, construction, and manufacturing, and the expansion in services. Economics explains these trends.
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Two Big Economic Questions How? Goods and services are produced by using productive resources that economists call factors of production .
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