Introduction
WHAT IS ECONOMICS?
Definition of Economics
 All economics questions arise because we want more
than we can get.
 Our inability to satisfy all our wants is called
scarcity.
 Scarcity arises because resources are limited.
Definition of Economics
 All economics questions arise because we want more
than we can get.
 Our inability to satisfy all our wants is called
scarcity.
 Scarcity arises because resources are limited.



There is only so much oil that be produced each day.
There is only so much food that can be grown each year.
There are only 24 hours in day.
Definition of Economics
 Economics is the social science that studies how
society deals with scarcity.



What is the best use of limited resources?
How can we get more use from these resources?
Who should get these resources?
 Since resources are scarce, choices must be made
how to best use those resources.

To use a resource for one activity means it cannot be used for
another – a choice must be made.
Two Areas of Economics
 Economics can be split into two primary areas:
 Microeconomics
 Study of the choices that individuals, households or businesses
make when faced with scarcity.
 Usually concerns issues surrounding efficiency and allocation
of resources.
 Macroeconomics
 Study of the performance of the national and global economy
as a whole.
 Usually concerns issues regarding growth and stability.
Economics As A Science
 Economics is a social science
 Along with psychology and sociology
 Tries to discover how the economic world works
 It follows the general scientific method
 Form a hypothesis, make observations, test the hypothesis, etc.
 Model Building
 Used for understanding and forecasting
 Example: The Supply & Demand Model
 (Note: The overwhelming majority of the class is dedicated to
learning the economic models)
Economics As A Science
 Economic models look at each piece “ceteris paribus”
 Ceteris Paribus – “everything else held constant”
 When using the models we imagine what would happen if only
one factor changed and we hold the other factors constant.
Economics As A Science
 “ceteris paribus” example
Wages
Years of
Education
Years of
Experience
Location
Eddie
$40,000
2
4
Charlotte
Alex
$70,000
4
10
New York
Dave
$55,000
5
6
Salt Lake City
Mike
??????
6
3
Chicago
 How much should Mike be making compared to the
rest of the group?
Economics As A Science
 “ceteris paribus” example
Wages
Years of
Education
Years of
Experience
Location
Eddie
$40,000
4
4
Charlotte
Alex
$70,000
4
10
Charlotte
Dave
$55,000
4
6
Charlotte
Mike
??????
4
3
Charlotte
 How much should Mike be making compared to the
rest of the group?
Economics As A Science
 Economic models look at the “positive” world – not
the “normative” world.

Positive Statements describe the world “as is.”
Unemployment is currently 8.6%
 The national debt is currently 1.4 trillion dollars
 Minimum wages cause some unemployment


Normative Statements describe the world “as it ought to be.”
8.6% unemployment is too high
 1.4 trillion dollars of debt isn’t enough
 Everyone needs to have at least a wage of $15 an hour
