The Magic of the Economy

Is Economics a Science?
The Study of Economics
Principles of Economics > The Study of Economics
Economics also allows individual agents to balance expectations.
Economics provides distilled frameworks to analyze complex societal interactions,
as in the case of consumer and firm behavior.
Being knowledgable about economics foundations allows an individual to be an
active and aware participant rather than a passive economic agent.
The Magic of the Economy
Circular Flow of the Economy
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Principles of Economics > The Study of Economics
Economics incorporates both qualitative and quantitative assessment.
Economics is divided into two broad areas: microeconomics and
macroeconomics.
Economics can be applied throughout society from business to individual behavior
with further application in the study of crime, family and other social institutions
and interactions.
Is Economics a Science?
Founders of Economics
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Principles of Economics > The Study of Economics
Key terms
circular flow A model of market economy that shows the flow of dollars between households and firms. (CC BY-SA 3.0)
externality An impact, positive or negative, on any party not involved in a given economic transaction or act. (CC BY-SA 3.0)
social science A branch of science that studies the society and human behavior in it, including anthropology, communication
studies, criminology, economics, geography, history, political science, psychology, social studies, and sociology. (CC BY-SA 3.0)

Principles of Economics
circular flow A model of market economy that shows the flow of dollars between households and firms. (CC BY-SA 3.0)
Principles of Economics
Circular Flow of the Economy
Economics provides an accessible foundation for understanding the complexity of the interactions in the world.For example, the circular flow diagram
displays the economic framework related to the dynamic interconnectedness of economic agents.In the graph above the display is limited to households
and firms but other depictions of circular flow incorporate the government and international trading partners.
Principles of Economics
Real Life Economics: Market Activity

Principles of Economics
Founders of Economics
John Stuart Mill, along with David Ricardo, Jeremy Bentham and other political and social philosophers of the mid-nineteenth century are credited with
the founding of the social-political theory that has evolved to be the discipline of economics.
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Principles of Economics
Principles of Economics
Why is the study of economics relevant?
A) Economics is the scientific study of the way in which humans make
choices about production, consumption and wealth when faced with
scarce resources.
B) An understanding of economics is important for financial success.
C) Economics is a social science and people need to be familiar with it.
D) Economics is not relevant given the changing global financial
dynamics.
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Principles of Economics
Why is the study of economics relevant?
A) Economics is the scientific study of the way in which humans make
choices about production, consumption and wealth when faced with
scarce resources.
B) An understanding of economics is important for financial success.
C) Economics is a social science and people need to be familiar with it.
D) Economics is not relevant given the changing global financial
dynamics.
Principles of Economics
Where can economic theory be applied?
A) Economic theory and analysis may be applied throughout society,
including business, finance, health care, and government.
B) Economic modeling can be used to explain consumer behavior.
C) Economics examines the behavior individual consumers and firms
within the market.
D) Economics analyzes the entire economy and issues affecting it.
Principles of Economics
Where can economic theory be applied?
A) Economic theory and analysis may be applied throughout society,
including business, finance, health care, and government.
B) Economic modeling can be used to explain consumer behavior.
C) Economics examines the behavior individual consumers and firms
within the market.
D) Economics analyzes the entire economy and issues affecting it.
Principles of Economics
Which of the following best explains the role of mathematics in
accomplishing the goals of the study of economics?
A) Economics became more mathematical as a discipline throughout the
first half of the 20th century.
B) Economics is a social science that assesses the relationship between
the consumption and production of goods and services in an environment
of finite resources.
C) Not all economists agree that mathematics has application to human
behavior and decision making.
D) Economic theory can only be applied to qualitative subjects.
Principles of Economics
Which of the following best explains the role of mathematics in
accomplishing the goals of the study of economics?
A) Economics became more mathematical as a discipline throughout the
first half of the 20th century.
B) Economics is a social science that assesses the relationship between
the consumption and production of goods and services in an environment
of finite resources.
C) Not all economists agree that mathematics has application to human
behavior and decision making.
D) Economic theory can only be applied to qualitative subjects.