 |  Macroeconomics, 9/e Campbell R. McConnell,
University of Nebraska, Lincoln
Stanley L. Brue,
Pacific Lutheran University
Thomas P. Barbiero,
Ryerson University
The Nature and Method of Economics
Chapter HighlightsCHAPTER 1- Economics is the study of the efficient use of scarce resources in the production of goods and services to satisfy
the maximum satisfaction of economic wants.
- The economic perspective includes three elements: scarcity and choice, rational behaviour, and marginalism.
It sees individuals and institutions making rational decisions based on comparisons of marginal costs and
marginal benefits.
- Economists employ the scientific method in which they form and test hypotheses of cause-and-effect relationships
to generate theories, laws, and principles.
- Generalizations stated by economists are called principles, theories, laws, or models. Good theories explain
real-world relationships and predict real-world outcomes.
- Economic policy is designed to identify and solve problems to the greatest extent possible and at the least
possible cost. This application of economics is called policy economics.
- Our society accepts certain shared economic goals, including economic growth, full employment, economic
efficiency, price-level stability, economic freedom, equity in the distribution of income, economic security, and
a reasonable balance in international trade and finance. Some of these goals are complementary; others
entail tradeoffs.
- Macroeconomics looks at the economy as a whole or its major aggregates; microeconomics examines specific
economic units or institutions.
- Positive statements state facts ("what is"); normative statements express value judgments ("what ought
to be").
- In studying economics we encounter such pitfalls as biases and preconceptions, unfamiliar or confusing terminology,
the fallacy of composition, and the difficulty of establishing clear cause–effect relationships.
Appendix- Graphs are a convenient and revealing way to represent economic relationships.
- Two variables are positively or directly related when their values change in the same direction. The line
(curve) representing two directly related variables slopes upward.
- Two variables are negatively or inversely related when their values change in opposite directions. The curve
representing two inversely related variables slopes downward.
- The value of the dependent variable (the "effect") is determined by the value of the independent variable
(the "cause").
- When the "other factors" that might affect a two-variable relationship are allowed to change, the graph of
the relationship will likely shift to a new location.
- The slope of a straight line is the ratio of the vertical change to the horizontal change between any two
points. The slope of an upsloping line is positive; the slope of a downsloping line is negative.
- The slope of a line or curve depends on the units used in measuring the variables. It is especially relevant
for economics because it measures marginal changes.
- The slope of a horizontal line is zero; the slope of a vertical line is infinite.
- The vertical intercept and slope of a line determine its location; they are used in expressing the line—and
the relationship between the two variables—as an equation.
- The slope of a curve at any point is determined by calculating the slope of a straight-line tangent to the curve
at that point.
|
|
2002 McGraw-Hill Higher Education