Economics: Theory and Practice, 10th Edition

CHAPTER 1

Introduction to Economics

CHAPTER OBJECTIVES

To define economics and introduce the scarcity and choice problem which underlies economics.

To explore opportunity cost, efficiency, and equity and their relationships to scarcity.

To identify the four factors of production and the income return to each type of factor.

To differentiate between economic theory and economic policy, and introduce the tools economists use to express theories and policies.

To use the production possibilities model to illustrate and explain the basic problem of scarcity.

To explain (in an appendix) how to construct a graph and interpret the illustrated relationship.

WHAT IS ECONOMICS?

We are always making choices. We constantly choose how to spend our time and our money. We make simple choices like whether to take the time to eat lunch rather than work or whether to spend money for bottled water rather than drink from a water fountain. We make complex choices about careers, where to live, and colleges. And, as members of society, we make choices about voting, supporting public policy issues, recycling, and volunteering to clean up the local park.

Choices are a part of everyday life because our wants exceed our ability to satisfy them. You may want to achieve a high grade point average (GPA) and maintain a job that gives you enough money for clothes, a car, and decent housing during a semester ...