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5
TOPIC 1. AN INTRODUCTION TO ECONOMICS
TEXT 1
In summary
Economics is a social science that studies the way society allo-
cates its available resources in the production of goods and services
consumed by people. Economics and the subject matter of economics,
touches our lives daily. If we shop for groceries, go to work, or pay
taxes, economics can help us to better understand our world.
Macroeconomics is the study of entire economy. Microeconom-
ics is the study of parts of the economy. While they view the economy
from different perspectives, both are important.
Scientific theories are used to explain economic activity in the
world. The theories consist of sets of economic principles that abstract
from the real world, similar to the way a road map abstracts from the
world. A principle is obtained by continuously testing a hypothesis to
see if it corresponds to activity in the world.
Positive economics describes the way the world actually oper-
ates, and normative economics suggests how the world should operate.
Positive economics is based on testable hypothesis, which can be
proved false. Normative economics is based on an individual’s values,
which cannot be proved either right or wrong.
The economist seeks to identify the benefits and costs of any ac-
tivity. Since marginal changes in benefits and costs from an activity
are the basis for most choices, such changes tend to attract the econo-
mist’s attention. Economists also use economic theories to recommend
policies to the government.
TASKS
1. Explain why this statement would fall under the heading of
positive economics: “The price of oranges will increase if the federal
deficit is eliminated”.
2. Explain why this statement would fall under the heading of
normative economics: “The price of oranges is too high.” Would an
orange buyer view this statement differently than the orange grower
would? Explain.
6
Review glossary
Allocation. The process of distributing resources for the pro-
duction of goods and services, and for distributing goods and services
for consumer goods.
Economics. A social science that studies the allocation of re-
sources to the production of goods and services used to satisfy con-
sumer’s unlimited wants and needs. As a social science economics
studies the social relationship of individuals. But unlike other social
sciences, economics consentrates its study on the economy.
Economy. A system of production, distribution, and consump-
tion of goods and services.
Efficiency. The process of obtaining the highest level of con-
sumer satisfaction from the available resources.
Macroeconomics. The branch of economics that studies the en-
tire economy. Macroeconomics examines such topics as the total
amount of output in economy, the rate of inflation and the number of
unemployed workers.
Microeconomics. The branch of economics that studies parts of
the economy. Microeconomics examines the individual consumers,
business, and industries that make up the economy.
Normative economics. A branch of economics that states the
way the economy should operate. A normative statement is based on
values and cannot be proved right or wrong.
Positive economics. A branch of economics that tries to explain
the way the economy actually operates. Positive economics is con-
cerned with the process of testing hypotheses. A positive statement can
be refuted by looking at the real world.
Resources. The materials available to an economy for the pro-
duction of goods and services.
Scarecity.. The condition that exists when there is an insuffi-
cient quantity of resources to produce all of the goods and services
desired by people.
TOPIC 1. AN INTRODUCTION TO ECONOMICS Review glossary
TEXT 1 Allocation. The process of distributing resources for the pro-
duction of goods and services, and for distributing goods and services
In summary for consumer goods.
Economics is a social science that studies the way society allo- Economics. A social science that studies the allocation of re-
cates its available resources in the production of goods and services sources to the production of goods and services used to satisfy con-
consumed by people. Economics and the subject matter of economics, sumer’s unlimited wants and needs. As a social science economics
touches our lives daily. If we shop for groceries, go to work, or pay studies the social relationship of individuals. But unlike other social
taxes, economics can help us to better understand our world. sciences, economics consentrates its study on the economy.
Macroeconomics is the study of entire economy. Microeconom- Economy. A system of production, distribution, and consump-
ics is the study of parts of the economy. While they view the economy tion of goods and services.
from different perspectives, both are important. Efficiency. The process of obtaining the highest level of con-
Scientific theories are used to explain economic activity in the sumer satisfaction from the available resources.
world. The theories consist of sets of economic principles that abstract Macroeconomics. The branch of economics that studies the en-
from the real world, similar to the way a road map abstracts from the tire economy. Macroeconomics examines such topics as the total
world. A principle is obtained by continuously testing a hypothesis to amount of output in economy, the rate of inflation and the number of
see if it corresponds to activity in the world. unemployed workers.
Positive economics describes the way the world actually oper- Microeconomics. The branch of economics that studies parts of
ates, and normative economics suggests how the world should operate. the economy. Microeconomics examines the individual consumers,
Positive economics is based on testable hypothesis, which can be business, and industries that make up the economy.
proved false. Normative economics is based on an individual’s values, Normative economics. A branch of economics that states the
which cannot be proved either right or wrong. way the economy should operate. A normative statement is based on
The economist seeks to identify the benefits and costs of any ac- values and cannot be proved right or wrong.
tivity. Since marginal changes in benefits and costs from an activity Positive economics. A branch of economics that tries to explain
are the basis for most choices, such changes tend to attract the econo- the way the economy actually operates. Positive economics is con-
mist’s attention. Economists also use economic theories to recommend cerned with the process of testing hypotheses. A positive statement can
policies to the government. be refuted by looking at the real world.
Resources. The materials available to an economy for the pro-
TASKS duction of goods and services.
1. Explain why this statement would fall under the heading of Scarecity.. The condition that exists when there is an insuffi-
positive economics: “The price of oranges will increase if the federal cient quantity of resources to produce all of the goods and services
deficit is eliminated”. desired by people.
2. Explain why this statement would fall under the heading of
normative economics: “The price of oranges is too high.” Would an
orange buyer view this statement differently than the orange grower
would? Explain.
5 6
