Download An Economic Way of Thinking

An Economic Way
of Thinking
What Is Economics All About?
What Is Economics All
About?
O Economics is various things to various
people
O • Economics has a lot to do with asking
questions about—and then solving or
explaining—everyday mysteries and
enigmas.
O
What Is Economics All
About? Cont.
O • Economics is the study of how people,
individually and in groups, choose to use
their limited resources to satisfy their
unlimited wants. All resources are scarce
because they exist in finite amounts. All
resources have alternative uses.
Economics is the science of decision
making, or of how people make
choices
O Positive economics describes how things are
O Normative economics describes how things
ought to be
What Seven Principles Guide an
Economic Way of Thinking?
O Scarcity-forces-tradeoffs principle: Limited
resources force people to make choices and
face tradeoffs when they choose.
O Cost-versus-benefits principle: People
choose something when the benefits of
doing so are greater than the costs
O Thinking-at-the-margin principle: Most
decisions involve choices about a little more
or a little less of something
What Seven Principles Guide an
Economic Way of Thinking?
O • Incentives-matter principle: People
respond to incentives in generally
predictable ways
O Trade-makes-people-better-off principle: By
focusing on what we do well and then
trading with others, we will end up with more
and better choices than by doing everything
for ourselves
What Seven Principles Guide an
Economic Way of Thinking?
O Markets-coordinate-trade principle: Markets
usually do better than anyone or anything
else at coordinating exchanges between
buyers and sellers.
O Future-consequences-count principle:
Decisions made today have future (and
often unintended) consequences.
What Tools Do Economists Use?
Economists use many tools in their
work
O The scientific method involves posing a
question, developing a hypothesis,
conducting studies and collecting data,
analyzing the data, and evaluating the
hypothesis.
O Graphs are two-dimensional representations
of a three-dimensional world. They show
relationships between two sets of data.
What Tools Do Economists
Use? Cont.
O Economic models are simplified
representations of reality that help
economists focus on the effects of one
change at a time.