Explorations in Economics
Alan B. Krueger & David A. Anderson
Chapter 1: Exploring Economics
- Module 1: What Is Economics?
- Module 2: Production Possibilities for Nation
- Module 3: The World of Economics
WHY STUDY ECONOMICS?
• Make sense of the daily news
• Make good decisions about your time and money
• Lead a happier, more satisfying life
SO…
• Economics provides a framework for understanding
the world around you.
• Economics helps you evaluate messages from
advertisers, the media, and people trying to take your
money.
MODULE 1:
What is Economics?
KEY IDEA:
Economics deals with the choices we make, individually and as a
society, under conditions of scarcity.
OBJECTIVES:
•To explain what economics is and why it is important.
•To define opportunity costs.
•To differentiate between wants and needs.
•To name society’s key economic resources.
SCARCITY AND YOU
Scarcity Implies Tradeoffs
Economics…the study of choice under conditions of
scarcity.
Scarcity…exists when we desire more of something than we
can have.
So…
You make a tradeoff when you give up one thing
to get something else. This means you make
tradeoffs to overcome scarcity.
Opportunity Cost
The opportunity cost of a choice is the value of the
next- best alternative given up when that choice is
made.
Scarcity and Society
Needs and Wants
Needs are minimal requirements of things such as food, water,
and shelter that are necessary for survival.
Wants are things that are desired but are not essential to life.
An economy coordinates the production and distribution of
goods and services.
Scarcity and Society
Goods and Services
Goods are physical items produced in an economy, such as
jeans, tennis rackets, popcorn, cars, and homes.
Think of some goods that you are currently carrying.
Services are activities produced in an economy, such as
education, entertainment, and health care.
Scarce Resources
Resources are the basic elements from which all
goods and services are produced.
Land is anything drawn from nature for use in the
production of goods or services.
Labor is the time and effort people contribute to the
production process.
Scarce Resources
Resources are the basic elements from which all
goods and services are produced.
Capital is anything long lasting that is created by
humans for use in production.
Entrepreneurship is the willingness of people to
organize, operate, and assume the risks involved with
business ventures.
Scarce Resources
Figure 1.1: Resource Scarcity
With limited resources and unlimited wants, society is forced to
make tradeoffs.
DID YOU GET IT? How does the scarcity of resources affect
society’s ability to satisfy its wants?
MODULE 1 REVIEW
What is…
A. Economics?
B. Scarcity?
C. Tradeoff?
D. Opportunity cost?
E. Society?
F. Needs?
G. Wants?
H. Economy?
I. Goods?
J. Services?
K. Resources?
L. Land?
M. Labor?
N. Capital?
O. Physical capital?
P. Human capital?
Q. Entrepreneurship?
R. Inputs?
MODULE 2:
Production Possibilities for a Nation
KEY IDEA:
A production possibilities frontier illustrates the tradeoffs
society makes in its use of scarce resources.
OBJECTIVES:
• To explain why economists use models.
• To present and interpret the production possibilities frontier
model.
• To explain the law of increasing opportunity cost.
• To define the concepts of efficiency and growth.
Economics Models
Economists use modeling to simplify
reality.
Models help to focus on selected aspects
of the real world by stripping away
nonessential details.
The Production Possibilities Frontier
A production
possibilities frontier, or
PPF, is a curve that
shows the maximum
quantity of one good
that can be produced for
each possible quantity of
another good produced.
Efficiency and Growth
An economy is
efficient if there is no
opportunity to make
someone better off
without making
anyone else worse off.
Opportunity Costs for Society
Opportunity Costs for Society
The law of
increasing
opportunity cost
states that the
opportunity cost
of a good rises as
more of the good
is produced.
Efficiency and Growth
Economic growth is an increase in the ability to
produce goods and services over time.
MODULE 2 REVIEW
What is…
A. Model?
B. Production possibilities frontier?
C. Law of increasing opportunity cost?
D. Efficient?
E. Economic growth?
F. Economic model?
MODULE 3:
The World of Economics
KEY IDEA:
There are two types of economics that differ in regard to the
topics economists study and the types of questions they ask.
OBJECTIVES:
• To explain the difference between microeconomics and
macroeconomics.
• To differentiate positive and normative economics.
• To identify terms that have special meanings in economics.
Microeconomics
Macroeconomics
The study of how people
make decisions and how
those decisions affect
others In the economy.
The study of the
economy as a whole.
Microeconomics
Example Topics:
- Profits
- Markets
- Pollution
Macroeconomics
Example Topics:
- Inflation
- Interest rates
- Government spending
Wages and Economics
A degree in
economics can allow
people to work in
many places in both
government and the
private sector.
Positive Economics
Normative Economics
Positive economics is the
study of what the world is like
and why it works the way it
does. It is about facts and
cause- and- effect
relationships.
Normative economics is the
study of the way things
should be rather than the
way things are. Normative
economics brings opinions
and ideals into the process of
answering questions.
Positive questions include:
• How many teenagers live in
poverty?
• Do people buy more or less
Coke when their incomes
increase?
Normative questions include:
• Should our country do
more to help the poor?
• Should college athletes be
paid to perform?
The Language of Economics
In economics, a market is not a place but a collection of
buyers and sellers, wherever they may be.
Markets coordinate prices through demand and supply.
Markets help society understand the problem of scarcity.
MODULE 3 REVIEW
What is…
A. Microeconomics?
B. Macroeconomics?
C. Positive economics?
D. Normative economics?
E. Market?
F. Capital?