What is Economics?

Economics

• economics: the study of how people in society choose to employ scarce resources that have alternative uses in order to produce goods and services now and in the future and distribute to various groups and people in society

  • how society chooses to deal with scarcity

• economics in NOT the study of:

  1. stock markets. bond markets, or other financial markets
  2. it’s not about money or how to make money
  3. it/s not about government or government policies

• economics is the systematic framework for making decisions

  • at the heart of economics is the idea of choice and understanding how individuals make their choices
  • understanding choice, implies we need to understand the objectives of the decision makers
  • understanding choice, involves understanding the options that decision makers have

• if we understand how people make choices, we might be able to better understand:

  1. the observed movements in the stock markets, bond markets, or other financial markets
  2. what career choices will help me make money
  3. Why did the people in government choose this policy? What were they hoping to achieve?

Thinking Like an Economist: Understanding Choices

• cost-benefit principle: people make choices and with each choice there are costs and benefits
• opportunity cost principle: before an individual makes a choice, they consider alternatives
• thinking on the margin principle: most choices involve a little bit more a little bit less
  • marginal always means additional
• the interdependence principle: how different decisions depend on each other

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