Ch 1 Economics

Chapter 1

What is Economics?

Why does public discussion of economic policy so often show

the abysmal ignorance of the participants? Why do I so

often want to cry at what public figures, the press, and

television commentators say about economic affairs?

ROBERT M. SOLOW

Why study Economics?

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The first reason to study economics is

that it will help you understand the

world in which you live.

How do you explain that gas price usually

goes up during the Labor Day weekend?

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Market forces of Demand and Supply determine

price of gas (can you draw a graph?)

Certain events trigger shifts in D or S or both,

which results in a lower or a higher price and

quantity

Did you know that only about 2% of U.S.

labor is in the agriculture, 15% in

manufacturing, and 83% is in service?

2

Economics as a Discipline

• Economics is a “Rigorous Social

Science”

• What are other social sciences?

– Psychology, Sociology, Political Science

• What are other sciences?

– Chemistry

– Physics

3

Economics as a Discipline

• Chemistry and physics use math to explain natural

phenomena, such as the velocity of a ball falling in

vacuum

• Economics is “MATH APPLIED TO PEOPLE”

– IT’S HARD TO STUDY HUMAN BEHAVIOR: people

do unpredictable things, gravity does not, chemicals

do not, once their properties are known

– It is more difficult to predict human behavior than to

predict chemical reactions

– Economic Research uses math and statistics

• Calculus - derivatives and integrals – mostly to build econ

models

• Statistics - regression analysis, econometrics – mostly to

test econ models

– In this course we use little math (no calculus)

– But there will be lots of graphs!

4

Ideas for Beyond the Final Exam

These are the 7 main ideas for the semester. We’ll

cover them in detail throughout the semester.

1. How much does it really cost?

• Opportunity cost (OC)

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Value of the next best alternative forgone...