Nature and Methods of Economics:The Study of Economics

Fall 2013

Scarcity and Choice Scarcity simply means that there isn’t

enough of something to satisfy all of society’s wants/needs for it

Economics is the study of scarcity and choice

Economies coordinate choices about production with choices about consumption

Three basic economic questions must be addressed in all societies:1. What to produce?2. How to produce?3. For whom to produce?

Pair and Share What are some things that are scarce? What are the two basic types of economies? How are decisions made in each?

Four Categories of Resources A resource (factor of production) is

anything that can be used to produce something else

What kinds of things are needed to produce goods and services?

LAND

LABOR

CAPITAL

ENTREPRENEURSHIP

Pair and Share Who decides how society uses resources?

Opportunity Cost Opportunity Cost is what you must give

up when you make a choice – money, time, etc., spent on one thing can’t be spent on another

EVERY cost is opportunity cost and it includes EVERYTHING you give up

Pair and Share Consider something you bought or did in

this last week. What were its opportunity costs?

What is the opportunity cost of going to college and the opportunity cost of not going?

Micro- versus Macro- Microeconomics is concerned with

individual decisions (people, households, and firms)

Macroeconomics is concerned with the “big picture” questions (behavior of the economy, int’l markets, govt policy)

Macroeconomics focuses on economic aggregates, measures that summarize data for the economy as a whole

Pair and Share Create one micro- and one macro- level

question for each of the following categories:

Micro- Category Macro-

JOBS

SALARY

PRICES

Positive versus Normative Positive Economics focus on how things

ARE Answers to these questions are FACTS

Normative Economics focus on how things SHOULD BE Answers to these questions are OPINIONS

Most economics focuses on normative economic questions, using economic analysis to determine which policies are best

Pair and Share Give examples of positive and normative

economic questions.

Check for Understanding1. Define resources.2. List the four categories of resources.3. How does scarcity impact economic

decisions?