CHAPTER1Economics:Foundations and ModelsChapterOutlineandLearningObjectives1.1ThreeKeyEconomicldeas1.2The Economic Problem ThatEverySocietyMustSolve1.3EconomicModels1.4MicroeconomicsandMacroeconomics1.5APreviewof ImportantEconomicTermsAPPENDIX:UsingGraphsandFormulas
1 Chapter Outline and Learning Objectives 1.1 Three Key Economic Ideas 1.2 The Economic Problem That Every Society Must Solve 1.3 Economic Models 1.4 Microeconomics and Macroeconomics 1.5 A Preview of Important Economic Terms APPENDIX: Using Graphs and Formulas CHAPTER 1 CHAPTER Economics: Foundations and Models
WhatlsThisClassAbout?People make choices as they try to attain their goals.Choices arenecessary because we live in a world of scarcityScarcity: A situation in which unlimited wants exceed the limitedresourcesavailabletofulfillthose wantsEconomicsisthestudyofthesechoicesEconomistsstudythesechoicesusingeconomicmodels,simplifiedversions of reality usedtoanalyze real-world economicsituations.@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 2 What Is This Class About? People make choices as they try to attain their goals. Choices are necessary because we live in a world of scarcity. Scarcity: A situation in which unlimited wants exceed the limited resources available to fulfill those wants Economics is the study of these choices. Economists study these choices using economic models, simplified versions of reality used to analyze real-world economic situations
Typical"Economics"QuestionsWewill learn howto answer guestions like these:. How are the prices of goods and services determined?. How does pollution affect the economy, and how shouldgovernment policydeal withtheseeffects?. Why do firms engage in international trade, and how dogovernment policies affect international trade?: Why does government control the prices of some goods andservices, and what are the effects of those controls?@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 3 Typical “Economics” Questions We will learn how to answer questions like these: • How are the prices of goods and services determined? • How does pollution affect the economy, and how should government policy deal with these effects? • Why do firms engage in international trade, and how do government policies affect international trade? • Why does government control the prices of some goods and services, and what are the effects of those controls?
ThreeKeyEconomicldeas1.1LEARNINGOBJECTIVEExplainthesethreekeyeconomicideasPeoplearerational;Peoplerespondtoeconomicincentives;andOptimaldecisionsaremadeatthemargin@2015PearsonEducafion,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 4 Three Key Economic Ideas 1.1 Explain these three key economic ideas: People are rational; People respond to economic incentives; and Optimal decisions are made at the margin
1.PeopleAreRationalEconomistsgenerallyassumethat peoplearerational.Rational: Using all available information to achieve your goalsRational consumers and firms weighthe benefits and costs of eachactionandtrytomakethebestdecisionpossibleExample:Microsoftdoesn'trandomlychoosethepriceofitsWindowssoftware;itchoosestheprice(s)thatitthinkswillbemostprofitable@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 5 1. People Are Rational Economists generally assume that people are rational. Rational: Using all available information to achieve your goals. Rational consumers and firms weigh the benefits and costs of each action and try to make the best decision possible. Example: Microsoft doesn’t randomly choose the price of its Windows software; it chooses the price(s) that it thinks will be most profitable