CHAPTER 1 - THE ECONOMIC WAY OF THINKING
about what to think, but
"Economics is not a body of concrete truth, but an engine for the discovery of the truth."
WAY of thinking in a very systematic, rational, logical manner.
In this chapter we will look at the economic way of thinking and we investigate how economists look
at making choices and decisions, and see how that is different than a non-economic approach.
"Economic way of thinking is a powerful tool that can help you understand a broad range of real world
What is Economics about?
About how people make choices.
First principle of economics
is that we live in a world of scarcity.
is that we have unlimited wants and desires.
- given 1 and 2, we have to make choices.
- the tools that we can use to battle scarcity.
Three categories of resources:
- forests, land, minerals, rivers, oceans, wildlife, oil, etc.
Human resources (capital)
- knowledge and skills, innovation, ingenuity, etc.
Education is developing human capital. Investing in human capital.
- machinery, technology, tools, computers, equipment, etc.
We use resources as inputs to produce economic goods - output.
Through the use of human capital (technology) we have greatly improved our standard of living. Think
of life today vs life 200 years ago.
Back to Adam Smith (p. 4), economics is concerned about how wealth is created.
Economic Way of Thinking
Quote, p. 8 - Keynes.
Economists differ about policy prescriptions - (Hoover wanted a one-armed economist) but there is a
common thread of econ theory that is consistent in econ. Most econ principles are just common sense.
However, there is nothing common.
Eight Guideposts to Econ Thinking
MGT 551: BUSINESS ECONOMICS – CH 1
Professor Mark J. Perry