Download What is economics?

1-10-12
 Give me two examples of trade-
offs you made yesterday.
What do Economists do?
CHAPTER 1 SECTION 3
Section 3 – What do Economists do?
Microeconomics – the branch of economic
theory that deals with behavior and decision
making by small units such as individuals and
firms.
Macroeconomics – branch of economic theory
dealing with the economy as a whole and
decision making by large units such as
governments.
Economic models
 To economists, the word economy means: All
the activity in a nation that together affects the
production, distribution, and use of goods and
services.
 Economists often formulate theories and
gather data when studying a specific part of
the economy. Things like rising teenage
unemployment, falling interest rates, etc.
 These theories are called economic models:
a theory or simplified representation that helps
explain and predict economic behavior in the
real world.
Economic models cont….
 Economists use models to understand in simple
terms the complex workings of the world.
 These models show visual representations of
consumer, business, or other economic behaviors.
 An example of a economic model is the production
possibility curve we talked about in section 2. Its
purpose was to reveal opportunity costs.
 When creating economic models, economists
assume that some variables will remain constant in
order to determine the effects of the changes in
the non-constant variables.
Models
Hypothesis – an educated guess or prediction.
 Used by economists to test their theories.
 Testing a Model can be done by collecting data
and comparing it to the hypothesis. If the data
proves the hypothesis the economist will have
to develop another hypothesis to explain the
data.
Schools of economic thought
 Economists deal with facts but their opinions
and beliefs may influence how they view those
facts and fit them into theories.
 Factors that may help create an economists
opinions can range from:
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political party alignment
education levels
to schools attended
etc.
Values and economics
 Values are the beliefs or characteristics that a
person or group considers important, such as
religious freedom, equal opportunity,
individual initiative, freedom from want, and
so on.
 Judgments about results of studies depend on
a person’s values.
 Economists can only try to inform us about
the likely short-term and long-term outcomes
of policies.
Mini debate
We will be discussing whether or
not the government should be
spending more money on
education, even if it requires raising
taxes.