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Unformatted text preview: CHAPTER ONE LIMITS, ALTERNATIVES, AND CHOICES CHAPTER OVERVIEW This chapter begins with a discussion of the meaning and importance of economics. In this first chapter, however, we will not plunge into problems and issues; instead we consider some important preliminaries. We first look at the economic perspectivehow economists think about problems. Next, we examine the specific methods economists use to examine economic behavior and the economy, including distinguishing between macroeconomics and microeconomics. We then look at the economizing problem from both an individual and societal perspective. For the individual we develop the budget line, for society the production possibilities model. In our discussion of production possibilities, the concepts of opportunity costs and increasing opportunity costs, unemployment, growth, and present vs. future possibilities are all demonstrated. Finally, in the Last Word, some of the problems, limitations, and pitfalls that hinder sound economic reasoning are examined. The Appendix to Chapter 1 provides an important introduction to graphical analysis. While this will be review material for most students, for some this may be new. Instructors are strongly urged to confirm that their students understand this section before proceeding. The software supplement can provide effective remedial help for those students who are not familiar with graphical analysis, or just need a refresher. WHATS NEW At the beginning of every chapter you will now find a list of learning objectives. For those using the test banks that accompany the text, many of the questions are now coded to indicate which learning objective they best reflect. This chapter consolidates material from Chapters 1 and 2 of the sixteenth edition into a single chapter. Students will move more quickly into central concepts such as opportunity cost and production possibilities, and into concrete examples of the methodology. The definition of economics has been revised slightly to: the social science that studies how individuals, institutions, and society make optimal (best) choices under conditions of scarcity. There is still emphasis, however, on using scarce resources efficiently to satisfy societys wants. The discussion of rational behavior has been changed to emphasize purposeful behavior and to make clear that this does not assume that people and institutions are immune from faulty logic, bad information, or other causes of seemingly irrational decisions. The economizing problem is now presented from both an individual (budget line) and societal (production possibilities) perspective. Those teaching a course focused solely on macroeconomic principles can easily skip the discussion of the budget line....
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