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Chapter 1 - The economic problem, after completing this chapter, students will be able to: Consider the economic problem that underlies the definition of economics; learn about the way economists specify economic choice; examine the production choices an entire economy faces, as demonstrated by the production possibilities model; analyze the three basic economic questions and how various answer them. | Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Chapter 1 The Economic Problem Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Chapter Objectives In this chapter, you will: consider the economic problem that underlies the definition of economics; learn about the way economists specify economic choice; examine the production choices an entire economy faces, as demonstrated by the production possibilities model; analyze the three basic economic questions and how various economic systems answer them. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Economics Defined Economics is the study of how to distribute scarce resources among competing ends. Microeconomics focuses on individual consumers and businesses. Macroeconomics takes a broad view of the economy. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * The Economic Problem Economists deal with the economic problem. Economic agents must . | Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Chapter 1 The Economic Problem Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. Chapter Objectives In this chapter, you will: consider the economic problem that underlies the definition of economics; learn about the way economists specify economic choice; examine the production choices an entire economy faces, as demonstrated by the production possibilities model; analyze the three basic economic questions and how various economic systems answer them. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Economics Defined Economics is the study of how to distribute scarce resources among competing ends. Microeconomics focuses on individual consumers and businesses. Macroeconomics takes a broad view of the economy. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * The Economic Problem Economists deal with the economic problem. Economic agents must continually make choices. Their wants are unlimited. They face a limited supply of economic resources. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Economic Models Economic models: simplify economic reality show how dependent variables are affected by independent variables include inverse and/or direct relationships incorporate a variety of assumptions such as ceteris paribus are classified as part of either positive economics or normative economics Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * Economic Choice Economists assume that economic decision-makers maximize their own utility. Decision-makers must keep in mind the opportunity cost of each alternative. Opportunity cost is defined as the utility of the best forgone alternative. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved. * The Production Possibilities Model The production possibilities model is based on three assumptions: an economy makes only two products .
