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CHAPTER 1 The Economic Problem Learning Objectives: LO1: Understand the relevance of economics LO2: Define economics, microeconomics, and macroeconomics and understand the importance of the scientific method LO3: Realize that scarcity, choice, and opportunity cost are at the heart of economics and that efficiency is a cornerstone © 2012 McGraw-Hill Ryerson Limited 1-1 LO2 What is Economics? Positive Statement – Can be verified with empirical data Normative Statement – Based on a person’s beliefs or value system – Cannot be verified with data © 2012 McGraw-Hill Ryerson Limited 1-2 LO2 Self-Test Identify each of the following statements as either positive (P) or normative (N) a. The federal government’s budget this year is the largest in history. b. The national debt is at a manageable level and therefore is nothing to worry about. c. The price of gasoline is higher than it needs to be. d. Rising Canadian exports are creating many new jobs in the country. © 2012 McGraw-Hill Ryerson Limited 1-3 LO2 What is Economics? Economic Theory – Looks at how positive statements are related – Uses the scientific method: • Set up a hypothesis • Define terms, state assumptions • Gather data to test hypothesis • Accept, reject, or modify theory © 2012 McGraw-Hill Ryerson Limited 1-4 LO2 What is Economics? Macroeconomics – How the major components of an economy interact – Unemployment, inflation, interest rates Microeconomics – Outcomes of decisions by people and firms – Supply and demand, costs of production, market structures © 2012 McGraw-Hill Ryerson Limited 1-5 LO2 Self-Test Identify which of the following topics would likely appear in a microeconomics course and which in a macroeconomics course. a. b. c. d. The price of iPods Unemployment rates The presence of monopolies The rate of economic growth © 2012 McGraw-Hill Ryerson Limited 1-6