INTRODUCTION

TO ECONOMICS
• Economics is a social science. This means that
economists, in their study of human interactions, use
models to simplify, analyze, and predict human
behavior. Models include graphs and mathematical
models.

• The study of economics is sometimes broken down

into two disciplines:

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microeconomics and macroeconomics.

Microeconomics examines the interactions of buyers and

sellers in individual markets for goods and services, the
competitive structure of markets, and the markets for
resources. Macroeconomics examines the interactions and
behavior of entire nations' economies, such as why
recessions occur, what causes economic growth, and how
countries can benefit from specialization and trade.

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 COMMON MISPERCEPTIONS
• Economics is not the study of stock
markets, money, or how to run a business.
Although many new students believe they will
be learning about these concepts, economics is
a social science that seeks to better understand
and predict human interactions; unlike business
and finance, which focus on how to manage a
business organization and invest money in a
way to earn the highest return for investors. 4
• One essential assumption made in most
economic analysis is that all humans are rational
and will make choices based on what is always
in their best interest. In the real world,
obviously, people, businesses, and even entire
societies can be highly irrational.

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• Just because a decision is "irrational" in the
economic sense, that doesn't mean that it is
inherently wrong, bad, or lesser than what an
economist would call a "rational" decision. In fact, the
field of Behavioral Economics seeks to understand
better the many reasons humans choose to make
economically "irrational" choices in their decision
making.
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• One of the four economic resources that
societies must decide how to allocate is capital.
When people use the word capital in everyday
conversation, many people are referring to
money or “financial capital.” In economics,
capital is defined as the already-produced goods
(tools, machinery, equipment, and physical
infrastructure) that are used in the production of
other goods or services. A robot on a car factory
floor is defined as capital in economics; money
you borrow to start your own business is not.
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