Copyright © 2004 South-Western Thinking Like an Economist

Copyright © 2004 South-Western

Thinking Like an Economist


Definition of Economics

"Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses."

--Lional Robbins"Economics is the study of how human

beings coordinate their wants and desires, given the decision making mechanism, social customs, and political realities of the society. “

--David Colander

"Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses."

--Lional Robbins"Economics is the study of how human

beings coordinate their wants and desires, given the decision making mechanism, social customs, and political realities of the society. “

--David Colander


Three Coordination Problems

1. What and how much to produce.

2. How to produce it.

3. For whom to produce it.

1. What and how much to produce.

2. How to produce it.

3. For whom to produce it.


Macroeconomics vs. Microeconomics


Figure 1 The Circular Flow


Figure 2 The Production Possibilities Frontier


Figure 3 A Shift in the Production Possibilities Frontier


Opportunity cost of x: the benefit forgone by undertaking x.

Apply: going to college, going to class, going to a movie.

Opportunity cost of x: the benefit forgone by undertaking x.

Apply: going to college, going to class, going to a movie.


Fundamental decision rule in economics

marginal benefit = marginal cost

Fundamental decision rule in economics

marginal benefit = marginal cost

Table 2 Ten Propositions about Which Most Economists Agree



Positive vs. normative economics.

The art of doing economics is the application of the knowledge learned in positive economics to the achievement of goals one has determined in normative economics.

Positive vs. normative economics.

The art of doing economics is the application of the knowledge learned in positive economics to the achievement of goals one has determined in normative economics.


Figure A-1 Types of Graphs


Figure A-2 Using the Coordinate System

Table A-1 Novels Purchased by Emma

Copyright©2003 Southwestern/Thomson Learning


Figure A-3 Demand Curve


Figure A-4 Shifting Demand Curves


Figure A-5 Calculating the Slope of a Line


Figure A-6 Graph with an Omitted Variable


Figure A-7 Graph Suggesting Reverse Causality

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Copyright © 2004 South-Western Thinking Like an Economist