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The Nature and Method of Economics

The Nature and Method of Economics. Chapter One. Economics. Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants. Economic Perspective. Economists view things through a unique perspective:

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The Nature and Method of Economics

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  1. The Nature and Method of Economics Chapter One

  2. Economics • Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.

  3. Economic Perspective • Economists view things through a unique perspective: • This way of thinking has several critical and closely interrelated features. • Scarcity & choice • Rational behavior • Marginalism: benefits and costs

  4. Scarcity and Choice • Since human and property resources are scarce (limited), the goods and services we produce must also be limited. • Scarcity limits our options. As a result, we must make choices.

  5. Rational behavior • Individuals will make different choices under different circumstances which will increase their utility (satisfaction). • Rational decisions may change as costs and benefits change.

  6. Marginal Analysis: Benefits & Costs • “marginal” – means extra, additional, or a change in. • Each decision made involves marginal benefits and costs. • As long as the marginal (additional) benefits exceeds the cost, you should pursue that choice.

  7. Why Study Economics? • Economics for Citizenship • A basic understanding of economics is essential if you are to be a well-informed citizen. • Professional and Personal Applications • The study of economics helps you make sense of the everyday activity you observe.

  8. Economic Goals • Economic growth • Full employment • Economic efficiency • Price-level stability • Economic freedom • Equitable distribution of income • Economic security • Balance of trade

  9. Macroeconomics and Microeconomics • Macroeconomics • Study of the economy as a whole. • Microeconomics • Study of specific economic units. I.E. small segments of the economy (businesses, households, government)

  10. Graphs and Their Meaning • Graph- visual representation of the relationship between two variables (I.e. price and quantity sold). • Direct (positive) Relationship- Two variables change in the same directions. • Inverse (negative) Relationship- Two variables change in opposite directions.

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