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What is Economics?
Learning Goals
Once you have completed this chapter, you should be able to:
• Realize the importance of economics as a social science
• Understand the purpose and benefit of economic thinking
• Recognize that choices express priorities and have different types of
consequences
• Begin thinking like an economist
• Use models to focus and direct economic decision making
Key Terms
• Effective (use of resources) • Stakeholder
• Priority • Scientific method
• Consequence • Economy
• Efficient (use of resources) • Analytical (or positive) economics
• Economize • Normative (or policy) economics
• Economics • Utility
• Social science • Util
Why Study Economics?
• To make sense of economic issues, you need a practical understanding
of economic concepts and principles.
• To assist with making daily choices regarding the use of scarce
resources. (Will I spend my entire pay cheque or allowance this week, or
will I put part of it in my savings account?)
• Economic knowledge and skills can lead to more effective civic
participation.
• The study of economics develops problem-solving, analytical, and
critical-thinking skills that can be beneficial in choosing a wide variety of
career paths in business, government, and education.
Making Difficult Choices
• Effective (use of resources): To be effective means to do the right things
so that goals are achieved
• Personal and Family priorities: Priorities involve favouring one thing in
place of another when both are not possible.
• Choices have consequences. Economic thinking requires careful analysis
of all cause-and-consequence relationships.
• Sound economic decision making requires receiving maximum benefits
from the resources being consumed. This requires the efficient use of
resources.
• Efficient (use of resources): The use of a bare minimum of resources to
achieve a desired end
 ECONOMIC THINKING
(to economize means to maximize
benefits while minimizing costs) ECONOMIC
CONSEQUENCES
Can be…
ISSUES
Reveal what needs immediate attention
Positive and/or negative

PERSPECTIVES
Help define personal and public Short-term and/or Lasting
interests, values, and concerns

CHOICES Instant and/or delayed

Require careful analysis of benefits and
costs for each available option
Direct and/or indirect
DECISIONS
Reflect priorities and trade-offs
Intended and/or unintended

ACTIONS
Require follow-through and evaluation Local and/or global
of effectiveness
Foreseeable and/or
OUTCOMES unforeseeable
Reveal consequences and related issues
What Exactly Is Economics?
• Economics: a practical science dealing with the production, distribution,
and use of goods, services, resources, and wealth. It is “the science of
scarcity and choice.”
• Economics as a social science: Because economics deals with the study
of people (either individually or in groups) making decisions about the
choices available to them, it falls into the category of a social science.
• Economics, like all other natural and social sciences, uses a common
investigative approach called the scientific method. The four
components of the scientific method are observation, data collection,
explanation, and verification.
What is an economy, and how
does it work?
An economy can be described as a self-sustaining system in which many
independent transactions by individuals, households, businesses, and
institutions (often triggered by self-interest) create distinct flows of money and
products.
An Economy…
• Is a very complex or intricate system with many participants or stakeholders
• Is dynamic or subject to constant movements and exchanges
• Consists of interdependent people, groups, and institutions, each performing
specialized roles
• Involves a series of independent transactions motivated by economic goals
• Involves numerous transactions that create two circular flows (goods and
services move in one direction while money flows in the opposite direction to
pay for what is received)
Analytical (or Positive)
Economics
• The branch of economics that deals with facts and direct observation of
the world
• It is concerned with two types of statements:
• Descriptive statements portray the world as it is or has been in the past
For example: “X is Y”, or “X was Y”
• Conditional statements are forecasts based on the careful analysis of
economic behavior
For example: “If X, then Y”
Normative (or Policy)
Economics
• The branch of economics that primarily concerns statements that
contain value judgements.
• Normative statements express what economists think should be the
case, based on their value judgements. These statements cannot be
confirmed or refuted solely by reference to facts.
Applying Economic Reasoning to
a Decision-Making Model
• Economists use the concept of utility to help make a rational choice
between available options. Utility refers to the usefulness, satisfaction,
or benefit provided by each option.
• Utils are units of satisfaction one gains from an item. They can be used
to represent economic value and to help make a comparison.
• Figure 1.3 Lani’s Dilemma
Applying Economic Reasoning to
a Decision-Making Model
FIGURE 1.3
A weighted decision-making matrix like this can help you establish your priorities.
  Available Options

  Attend the concert Work extra hours Write a better research paper

Decision Criteria Weighting* Util Score † Weighted Utility Util Score Weighted Utility Util Score Weighted Utility

Marks 3 0 0 0 0 3 3×3=9

Preparation for post-secondary 3 0 0 0 0 3 3×3=9

studies

Fun with friends 2 3 2×3=6 3 2×3=6 0 0

Extra income 1 0 0 3 1×3=3 0 0

Total Utils 6 9 18

Which option provides the most satisfaction or utility?

* Weighting:1 = low importance/priority; 2 = medium importance/priority; 3 = high importance/priority

†
 Util Scale:0 = no satisfaction; 1 = low satisfaction; 2 = moderate satisfaction; 3 = high satisfaction
 Ch1 - Activities / Homework
• Kahoot!
• Consolidation Activities
• Knowledge – Question 1
• Application – Question 13, use a similar decision-making
matrix as Figure 1.3 to determine the best use of your
$3000. Minimum of 3 decision criteria.

**Submit responses under the Assignments tab in Teams