Limits, Alternatives, and Choices
LIMITS, ALTERNATIVES, AND CHOICES
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 perspective—how 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.
After completing this chapter, students should be able to:
1. Define economics.
2. Describe the “economic way of thinking,” including definitions of purposeful behavior,
utility, marginal costs, marginal benefits and how these concepts may be used in
3. Explain how economists use the scientific method to formulate economic principles.
Explain the importance of ceteris paribus in formulating economic principles.
5. Explain the steps used by policy makers.
6. Differentiate between micro- and macroeconomics.
7. Differentiate between positive and normative economics.