Professional Documents
Culture Documents
Principles of Economics,
9e
; ; By
Karl E. Case,
Ray C. Fair &
Sharon M. Oster
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 1 of 50
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 2 of 50
PART I INTRODUCTION TO ECONOMICS
Prepared by:
Fernando & Yvonn Quijano
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
PART I INTRODUCTION TO ECONOMICS
CHAPTER OUTLINE
Why Study Economics?
To Learn a Way of Thinking
To Understand Society
To Understand Global Affairs
To Be an Informed Voter
The Scope of Economics
Microeconomics and
Macroeconomics
The Diverse Fields of Economics
The Method of Economics
Theories and Models
Economic Policy
An Invitation
Appendix: How to Read
and Understand Graphs
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 4 of 50
The Scope And Method Of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 5 of 50
What is economics?
a. Economics is the study of money and financial systems.
b. Economics is the study of business.
c. Economics is a behavioral science that studies how people
make choices.
d. Economics is a natural science that studies the resources
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 6 of 50
What is economics?
a. Economics is the study of money and financial systems.
b. Economics is the study of business.
c. Economics is a behavioral science that studies how
people make choices.
d. Economics is a natural science that studies the resources
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 7 of 50
Why Study Economics?
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 8 of 50
Why Study Economics?
Opportunity Cost
scarce Limited.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 9 of 50
What is opportunity cost?
a. Opportunity cost refers to costs that cannot be avoided, regardless of
what is done in the future, because they have already been incurred.
b. Opportunity cost is the value of what we give up by not making the
alternative choice.
c. Opportunity cost is a business concept that explains why it is
important to consider the additional cost of production, not just the
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 10 of 50
What is opportunity cost?
a. Opportunity cost refers to costs that cannot be avoided, regardless of
what is done in the future, because they have already been incurred.
b. Opportunity cost is the value of what we give up by not making
the alternative choice.
c. Opportunity cost is a business concept that explains why it is important
to consider the additional cost of production, not just the initial cost, in
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 11 of 50
Why Study Economics?
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 12 of 50
Why Study Economics?
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 13 of 50
Why Study Economics?
To Understand Society
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 14 of 50
Why Study Economics?
ECONOMICS IN PRACTICE
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 15 of 50
Why Study Economics?
To Be An Informed Citizen
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 16 of 50
The Scope of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 17 of 50
The Scope of Economics
Divisions
of Economics Production Prices Income Employment
Microeconomics Production/output in Price of individual Distribution of Employment by
individual industries and goods and services income and individual businesses
businesses wealth and industries
How much steel Price of medical care Wages in the auto Jobs in the steel
How much office Price of gasoline industry industry
space Food prices Minimum wage Number of employees
How many cars Apartment rents Executive salaries in a firm
Poverty Number of
accountants
Total industrial output Consumer prices Total wages and Total number of jobs
Gross domestic Producer prices salaries Unemployment rate
product Rate of inflation Total corporate
Growth of output profits
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 18 of 50
The Scope of Economics
The Diverse Fields of Economics
TABLE 1.2 The Fields of Economics
Comparative economic examines the ways alternative economic systems function. What are the
systems advantages and disadvantages of different systems?
Econometrics applies statistical techniques and data to economic problems in an effort to test
hypotheses and theories. Most schools require economics majors to take at least
CHAPTER 1 The Scope and Method of Economics
Industrial organization looks carefully at the structure and performance of industries and firms within an
economy. How do businesses compete? Who gains and who loses?
International economics studies trade flows among countries and international financial institutions. What are
the advantages and disadvantages for a country that allows its citizens to buy and
sell freely in world markets? Why is the dollar strong or weak?
Labor economics deals with the factors that determine wage rates, employment, and unemployment.
How do people decide whether to work, how much to work, and at what kind of job?
How have the roles of unions and management changed in recent years?
Law and economics analyzes the economic function of legal rules and institutions. How does the law
change the behavior of individuals and businesses? Do different liability rules make
accidents and injuries more or less likely? What are the economic costs of crime?
Public economics examines the role of government in the economy. What are the economic functions
of government, and what should they be? How should the government finance the
services that it provides? What kinds of government programs should confront the
problems of poverty, unemployment, and pollution? What problems does
government involvement create?
Urban and regional studies the spatial arrangement of economic activity. Why do we have cities? Why
economics are manufacturing firms locating farther and farther from the center of urban areas?
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 20 of 50
Which of the following statements is correct?
a. The aggregate price level is a subject of concern in
microeconomics.
b. A study of employment in the semiconductor industry would be
categorized as a microeconomic study.
c. The production and growth of output in the domestic economy
CHAPTER 1 The Scope and Method of Economics
is a microeconomic concern.
d. Microeconomics is an in-depth study of aggregate economic
behavior.
e. Microeconomics includes the study of fiscal and monetary
policies, or government policies designed to steer the
economy in the right direction.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 21 of 50
Which of the following statements is correct?
a. The aggregate price level is a subject of concern in
microeconomics.
b. A study of employment in the semiconductor industry
would be categorized as a microeconomic study.
c. The production and growth of output in the domestic economy
CHAPTER 1 The Scope and Method of Economics
is a microeconomic concern.
d. Microeconomics is an in-depth study of aggregate economic
behavior.
e. Microeconomics includes the study of fiscal and monetary
policies, or government policies designed to steer the
economy in the right direction.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 22 of 50
The Method of Economics
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 23 of 50
The Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 24 of 50
The Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 25 of 50
If you apply your own values to judge economic decisions, which
category of economics would you be applying?
a. Normative economics.
b. Positive economics.
c. Descriptive economics.
d. Economic theory.
CHAPTER 1 The Scope and Method of Economics
e. Empirical economics.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 26 of 50
If you apply your own values to judge economic decisions, which
category of economics would you be applying?
a. Normative economics.
b. Positive economics.
c. Descriptive economics.
d. Economic theory.
CHAPTER 1 The Scope and Method of Economics
e. Empirical economics.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 27 of 50
The Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 28 of 50
Economic models are:
a. Precise representations of reality that include as many details
as possible in order to accurately predict behavior.
b. Simplifications of reality that focus only on key relationships
and ignore less relevant details.
c. General interpretations of cause and effect.
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 29 of 50
Economic models are:
a. Precise representations of reality that include as many details
as possible in order to accurately predict behavior.
b. Simplifications of reality that focus only on key
relationships and ignore less relevant details.
c. General interpretations of cause and effect.
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 30 of 50
The Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 31 of 50
The Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 32 of 50
The Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 33 of 50
The Method of Economics
Economic Policy
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 34 of 50
The Method of Economics
Economic Policy
CHAPTER 1 The Scope and Method of Economics
Efficiency
Equity
equity Fairness.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 35 of 50
The Method of Economics
Economic Policy
CHAPTER 1 The Scope and Method of Economics
Growth
Stability
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 36 of 50
An Invitation
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 37 of 50
Which of the following criteria for judging economic outcomes refers
to producing what people want at the least possible cost?
a. Efficiency.
b. Equity.
c. Growth.
d. Stability.
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 38 of 50
Which of the following criteria for judging economic outcomes refers
to producing what people want at the least possible cost?
a. Efficiency.
b. Equity.
c. Growth.
d. Stability.
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 39 of 50
REVIEW TERMS AND CONCEPTS
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 40 of 50
APPENDIX
HOW TO READ AND UNDERSTAND GRAPHS
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 41 of 50
APPENDIX
HOW TO READ
AND UNDERSTAND GRAPHS
TIME SERIES GRAPHS
Total Total
Disposable Disposable
Personal Personal
Year Income Year Income
1975 1,181.4 1991 4,474.8
1976 1,299.9 1992 4,754.6
1977 1,436.0 1993 4,935.3
1978 1,614.8 1994 5,165.4
1979 1,808.2 1995 5,422.6
1980 2,019.8 1996 5,677.7
1981 2,247.9 1997 5,968.2
1982 2,406.8 1998 6,355.6
1983 2,586.0 1999 6,627.4
1984 2,887.6 2000 7,120.2
1985 3,086.5 2001 7,393.2
1986 3,262.5 2002 7,827.7
1987 3,459.5 2003 8,159.9
1988 3,752.4 2004 8,646.9
1989 4,016.3 2005 8,945.6 FIGURE 1A.1 Total Disposable Personal
1990 4,293.6 2006 9,501.5 Income in the United States: 1975–2006 (in
billions of dollars)
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 42 of 50
APPENDIX
Appendix
HOW TO READ AND UNDERSTAND GRAPHS
System
A Cartesian coordinate system is
constructed by drawing two
perpendicular lines: a vertical
axis (the Y-axis) and a horizontal
axis (the X-axis). Each axis is a
measuring scale.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 43 of 50
APPENDIX
HOW TO READ AND UNDERSTAND GRAPHS
PLOTTING INCOME AND CONSUMPTION DATA
FOR HOUSEHOLDS
TABLE 1A.2 Consumption Expenditures
and Income, 2005
Average
Consumption
CHAPTER 1 The Scope and Method of Economics
Average Income
Before Taxes Expenditures
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 44 of 50
APPENDIX
HOW TO READ AND UNDERSTAND GRAPHS
SLOPE
Y Y2 Y1
X X 2 X 1
FIGURE 1A.4 A Curve with (a) Positive Slope and (b) Negative Slope
CHAPTER 1 The Scope and Method of Economics
A positive slope indicates that increases in X are A negative slope indicates the opposite—
associated with increases in Y and that decreases when X increases, Y decreases and when
in X are associated with decreases in Y. X decreases, Y increases.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 45 of 50
Refer to the figure below. The expression of the slope of the line
between points A and B equals:
a. Y2 Y1
X 2 X1
b. Y2 X 2
CHAPTER 1 The Scope and Method of Economics
Y1 X 1
c. X 2 X1
Y2 Y1
d. X 2 Y1
Y2 X 1
e. X 2 X1
Y1 Y2
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 46 of 50
Refer to the figure below. The expression of the slope of the line
between points A and B equals:
a. Y 2 Y1
X 2 X1
b. Y2 X 2
CHAPTER 1 The Scope and Method of Economics
Y1 X 1
c. X 2 X1
Y2 Y1
d. X 2 Y1
Y2 X 1
e. X 2 X1
Y1 Y2
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 47 of 50
APPENDIX
HOW TO READ AND UNDERSTAND GRAPHS
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 48 of 50
Refer to the figure below. According to this graph, the relationship
between hours of study time and points on the exam is as
follows:
a. The relationship is first positive and then it turns negative.
b. Positive but diminishing.
c. Positive and increasing.
CHAPTER 1 The Scope and Method of Economics
d. Negative.
e. Nonexistent.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 49 of 50
Refer to the figure below. According to this graph, the relationship
between hours of study time and points on the exam is as
follows:
a. The relationship is first positive and then it turns negative.
b. Positive but diminishing.
c. Positive and increasing.
CHAPTER 1 The Scope and Method of Economics
d. Negative.
e. Nonexistent.
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 50 of 50
APPENDIX
SOME PRECAUTIONS
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 51 of 50
REVIEW TERMS AND CONCEPTS
CHAPTER 1 The Scope and Method of Economics
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster 52 of 50