Ch01 - CHAPTER 1 INTRODUCTION WHAT IS ECONOMICS 1 2 3 4 5 6...

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CHAPTER 1 INTRODUCTION: WHAT IS ECONOMICS? 1. Chapter Summary 2. Chapter Outline Teaching Tips/Topics for Class Discussion 3. Extended Examples for Class  Extended Example 1:  The Medical Care Tradeoff Extended Example 2:  Altruistic Behavior 4. Problems And Discussion Questions 5. Model Answers to Questions:  Chapter Opening Questions Test Your Understanding 6. Economics   Applied-   Using   What   You’ve   Learned 1. Chapter Summary Chapter 1 provides a basic illustration of what economics is and why it is useful. Through economics we study the choices made when the resources are limited. We can use economic analysis to understand the consequences of these choices... The chapter deals with positive and normative analysis. The division of economics into microeconomics and macroeconomics is presented, along with the type of policy questions that are answered in those fields. The chapter concludes by discussing the methodology of economics: use of assumptions; the ceteris paribus assumption; and thinking about decisions on the margin. 2. Chapter Outline I. What is Economics? A. A definition of economics: the study of choices made by people who are faced with scarcity B. Scarcity : a situation in which resources are limited and can be used in different ways, so we must sacrifice one thing for another. Teaching Tip: Students have scarce resources they have to allocate as well. Ask the class who had breakfast this morning. You should have a room full of both breakfasters and those who did not. Ask those who did not eat breakfast why not. Some one is sure to say they did not have the time. Explain that we all have the same amount of time (a scarce resource) but we choose to allocate it differently. (i.e. sleep in, workout, study, eat breakfast) C. Positive versus Normative Analysis 1. Positive economics answers questions of fact, or “what is?” 2. Normative economics answers questions of “what ought to be?” Teaching Tip: Tell the students Mr. Alumni Bigbucks has donated 50 million dollars 1
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2 Chapter 1 to the university. It can be used to build a new stadium or a state of the art library/Technology center (Positive). What do they think should be built and why? (Normative) D. Decisions in a Modern Economy: The Invisible Hand? The choices made by individuals, firms, or governments answer three fundamental questions: 1. What goods and services do we produce? 2. How do we produce these goods and services? 3. Who consumes the goods and services that are produced? Teaching Tip: Now is a good time to introduce the concept of markets indirectly. Consumers decide what is produced and for whom, businesses decide how. II. Economic Analysis and Modern Problems Economic analysis can provide insight into real-world problems such as: A.
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