Chapter
Getting
Started
CHAPTER OUTLINE
I. Define economics and explain the kinds of questions that economists try
to answer.
A. Scarcity
B. Economics Defined
C. What, How, and For Whom?
1. What?
2. How?
3. For Whom?
D. When Is the Pursuit of Self-Interest in the Social Interest?
1. Self-Interest and the Social Interest
2. Globalization and International Outsourcing
3. The New Economy
4. Disappearing Tropical Rainforests
5. Water Shortages
6. Global Warming
7. Natural Disasters
8. Unemployment
9. A Social Security Time Bomb
2. Explain the core ideas that define the economic way of thinking.
A. Core Economic Ideas
B. Rational Choice
C. Cost: What You Must Give Up
D. Benefit: Gain Measured By What You Are Willing to Give Up
E. On the Margin
1. Marginal Cost
2. Marginal Benefit
3. Making a Rational Choice
F. Responding to Incentives
G. The Micro and Macro Views of the World
1. Microeconomics
2. Macroeconomics
3. Micro and Macro Dimensions
,2 Part 1 . INTRODUCTION
H. Economics as Social Science
1. Positive Statements
2. Normative Statements
3. Unscrambling Cause and Effect
I. Economics as Policy Tool
1. Personal Economic Policy
2. Business Economic Policy
3. Government Economic Policy
CHAPTER ROADMAP
What’s New in this Edition?
The chapter has been slightly rewritten to keep it up‐to‐date.
Where We Are
In Chapter 1, we review definitions and address questions
that economics helps answer. We also discuss how people
make rational choices and preview the fact that these are the
choices that individuals and firms make everyday.
Where We’re Going
After laying out the basic ideas of economics in this chapter,
and some basic facts about the economy in the next, in Chap‐
ter 3 we’ll start building tools and models that help us un‐
derstand how the economy works. These tools and models,
such as the production possibilities frontier and the demand
and supply framework, provide valuable insight into how
the economy that we operate in each day works.
IN THE CLASSROOM
Class Time Needed
You can complete this chapter in one session. As simple as the ideas might seem
to you, covering the definitions and questions are important to your students,
especially in the context of current events and topics. Thus do not shortchange
this chapter.
An estimate of the time per checkpoint is:
• 1.1 Definitions and Questions—15 to 20 minutes
• 1.2 The Economic Way of Thinking—25 to 30 minutes
, Chapter 1 . Getting Started 3
Classroom Activity: For the first week, have the students bring to class newspaper headlines that
deal with stories about what goods and services are produced, how goods and services are
produced, and for whom the goods and services are produced. When they bring their head‐
lines to class, use the headlines to grab the students’ attention and raise a sense of excitement
about learning this subject. Point out to them they will gain real insights into topics such as
those in the headlines when they’ve completed their course.
Classroom Activity: Help the students to appreciate the power of models as tools for under‐
standing reality. The analogy of a model as a map is easy and convincing. Jim Peach, a fine
economics teacher at the University of New Mexico, gets his students to make paper air‐
planes on the first day of class. After flying their paper planes around the classroom (and
picking up the debris!) he gets them to talk about what they can learn about real airplanes
from experimenting with paper (and other model) planes.
Classroom Activity: You also can help your students appreciate that no matter how appealing or
“realistic looking” a model appears to be, it is useless if it fails to predict. And the converse,
no matter how abstract or far removed from reality a model appears to be, if it predicts well,
it is valuable. Milton Friedman’s pool hall example illustrates the point nicely: Imagine a
physicist’s model that predicts where a carefully placed shot of a pool shark would go as he
tries to sink the eight ball into the corner pocket. The model would be a complex, trigonomet‐
ric equation involving tangents, cosines and a plethora of Greek symbols that no ordinary
person would even recognize as representing a pool shot. It wouldn’t depict what we see—a
pool stick striking a pool cue on a rectangular patch of green felt. It wouldn’t even reflect the
thought processes of the pool shark, who relies on years of experience and the right “touch.”
But constructed correctly, this mathematical model would predict exactly where the cue ball
would strike the eight ball, hit opposite the bank, and fall into the corner pocket. (You can
invent analogous examples from any sport.)
, 4 Part 1 . INTRODUCTION
CHAPTER LECTURE
1.1 Definition and Questions
Scarcity
• Economic questions arise because we always want more than we can get, so we face scar-
city, the inability to satisfy all our wants. Everyone faces scarcity because no one can sat‐
isfy all of his or her wants.
Forbes lists Bill Gates and Warren Buffet as the two wealthiest Americans. Do these two men face
scarcity? According to The Wall Street Journal, both men are ardent bridge players, yet they have
never won one of the many national bridge tournaments they have entered as a team. These two
men can easily afford the best bridge coaches in the world and but other duties keep them from
practicing as much as they would need to in order to win. So even the wealthiest two Americans
face scarcity (of time) and must choose how to spend their time.
Economics Defined
• Economics is the social science that studies the choices that individuals, businesses, gov‐
ernments and entire societies make when they cope with scarcity and the incentives that
influence and reconcile those choices.
Lecture Launcher: Students might not fully appreciate that economics is truly a science. They
believe that economists are often incorrect in their predictions and assessments of the econ‐
omy. Here is an opportunity for you to demonstrate humility and also show them (albeit
charitably) the error in their conclusion. First, it is important to state honestly that many
economists who have made forecasts have not only been wrong but sometimes spectacularly
wrong. However, point out that being wrong doesn’t make their work unscientific. Remind
the students that all science is constantly evolving. For instance, it was only five centuries ago
that scientists believed the earth to be flat! No one claimed that these scientists were engaged
in unscientific methods. Instead, when theories no longer fit the facts, they must either be
reformulated or discarded in favor of new ones.
Lecture Launcher: Maggy Shannon, who teaches at Gordon College in Georgia, tells her class a
story from when she was an undergraduate: She telephoned her mother and in the course of
her conversation, mentioned that “Dr. Thomas” had said she might have mono. Her mother
was horrified, and didn’t calm down until she had managed to explain that Dr. Thomas was
an anthropologist. The point is that some opinions carry more weight than others. And, what
the students are preparing to learn is the “opinions” of economists—positive models—about
how the economy works.
What, How, and For Whom?
• Goods and services are the objects that people value and produce to satisfy human
wants.
• Societies must answer three very basic questions:
• What?: What determines the quantities of the goods and services produced?
Getting
Started
CHAPTER OUTLINE
I. Define economics and explain the kinds of questions that economists try
to answer.
A. Scarcity
B. Economics Defined
C. What, How, and For Whom?
1. What?
2. How?
3. For Whom?
D. When Is the Pursuit of Self-Interest in the Social Interest?
1. Self-Interest and the Social Interest
2. Globalization and International Outsourcing
3. The New Economy
4. Disappearing Tropical Rainforests
5. Water Shortages
6. Global Warming
7. Natural Disasters
8. Unemployment
9. A Social Security Time Bomb
2. Explain the core ideas that define the economic way of thinking.
A. Core Economic Ideas
B. Rational Choice
C. Cost: What You Must Give Up
D. Benefit: Gain Measured By What You Are Willing to Give Up
E. On the Margin
1. Marginal Cost
2. Marginal Benefit
3. Making a Rational Choice
F. Responding to Incentives
G. The Micro and Macro Views of the World
1. Microeconomics
2. Macroeconomics
3. Micro and Macro Dimensions
,2 Part 1 . INTRODUCTION
H. Economics as Social Science
1. Positive Statements
2. Normative Statements
3. Unscrambling Cause and Effect
I. Economics as Policy Tool
1. Personal Economic Policy
2. Business Economic Policy
3. Government Economic Policy
CHAPTER ROADMAP
What’s New in this Edition?
The chapter has been slightly rewritten to keep it up‐to‐date.
Where We Are
In Chapter 1, we review definitions and address questions
that economics helps answer. We also discuss how people
make rational choices and preview the fact that these are the
choices that individuals and firms make everyday.
Where We’re Going
After laying out the basic ideas of economics in this chapter,
and some basic facts about the economy in the next, in Chap‐
ter 3 we’ll start building tools and models that help us un‐
derstand how the economy works. These tools and models,
such as the production possibilities frontier and the demand
and supply framework, provide valuable insight into how
the economy that we operate in each day works.
IN THE CLASSROOM
Class Time Needed
You can complete this chapter in one session. As simple as the ideas might seem
to you, covering the definitions and questions are important to your students,
especially in the context of current events and topics. Thus do not shortchange
this chapter.
An estimate of the time per checkpoint is:
• 1.1 Definitions and Questions—15 to 20 minutes
• 1.2 The Economic Way of Thinking—25 to 30 minutes
, Chapter 1 . Getting Started 3
Classroom Activity: For the first week, have the students bring to class newspaper headlines that
deal with stories about what goods and services are produced, how goods and services are
produced, and for whom the goods and services are produced. When they bring their head‐
lines to class, use the headlines to grab the students’ attention and raise a sense of excitement
about learning this subject. Point out to them they will gain real insights into topics such as
those in the headlines when they’ve completed their course.
Classroom Activity: Help the students to appreciate the power of models as tools for under‐
standing reality. The analogy of a model as a map is easy and convincing. Jim Peach, a fine
economics teacher at the University of New Mexico, gets his students to make paper air‐
planes on the first day of class. After flying their paper planes around the classroom (and
picking up the debris!) he gets them to talk about what they can learn about real airplanes
from experimenting with paper (and other model) planes.
Classroom Activity: You also can help your students appreciate that no matter how appealing or
“realistic looking” a model appears to be, it is useless if it fails to predict. And the converse,
no matter how abstract or far removed from reality a model appears to be, if it predicts well,
it is valuable. Milton Friedman’s pool hall example illustrates the point nicely: Imagine a
physicist’s model that predicts where a carefully placed shot of a pool shark would go as he
tries to sink the eight ball into the corner pocket. The model would be a complex, trigonomet‐
ric equation involving tangents, cosines and a plethora of Greek symbols that no ordinary
person would even recognize as representing a pool shot. It wouldn’t depict what we see—a
pool stick striking a pool cue on a rectangular patch of green felt. It wouldn’t even reflect the
thought processes of the pool shark, who relies on years of experience and the right “touch.”
But constructed correctly, this mathematical model would predict exactly where the cue ball
would strike the eight ball, hit opposite the bank, and fall into the corner pocket. (You can
invent analogous examples from any sport.)
, 4 Part 1 . INTRODUCTION
CHAPTER LECTURE
1.1 Definition and Questions
Scarcity
• Economic questions arise because we always want more than we can get, so we face scar-
city, the inability to satisfy all our wants. Everyone faces scarcity because no one can sat‐
isfy all of his or her wants.
Forbes lists Bill Gates and Warren Buffet as the two wealthiest Americans. Do these two men face
scarcity? According to The Wall Street Journal, both men are ardent bridge players, yet they have
never won one of the many national bridge tournaments they have entered as a team. These two
men can easily afford the best bridge coaches in the world and but other duties keep them from
practicing as much as they would need to in order to win. So even the wealthiest two Americans
face scarcity (of time) and must choose how to spend their time.
Economics Defined
• Economics is the social science that studies the choices that individuals, businesses, gov‐
ernments and entire societies make when they cope with scarcity and the incentives that
influence and reconcile those choices.
Lecture Launcher: Students might not fully appreciate that economics is truly a science. They
believe that economists are often incorrect in their predictions and assessments of the econ‐
omy. Here is an opportunity for you to demonstrate humility and also show them (albeit
charitably) the error in their conclusion. First, it is important to state honestly that many
economists who have made forecasts have not only been wrong but sometimes spectacularly
wrong. However, point out that being wrong doesn’t make their work unscientific. Remind
the students that all science is constantly evolving. For instance, it was only five centuries ago
that scientists believed the earth to be flat! No one claimed that these scientists were engaged
in unscientific methods. Instead, when theories no longer fit the facts, they must either be
reformulated or discarded in favor of new ones.
Lecture Launcher: Maggy Shannon, who teaches at Gordon College in Georgia, tells her class a
story from when she was an undergraduate: She telephoned her mother and in the course of
her conversation, mentioned that “Dr. Thomas” had said she might have mono. Her mother
was horrified, and didn’t calm down until she had managed to explain that Dr. Thomas was
an anthropologist. The point is that some opinions carry more weight than others. And, what
the students are preparing to learn is the “opinions” of economists—positive models—about
how the economy works.
What, How, and For Whom?
• Goods and services are the objects that people value and produce to satisfy human
wants.
• Societies must answer three very basic questions:
• What?: What determines the quantities of the goods and services produced?
