Chapter 1 Summary: What Is Economics?
The Basic Problem in Economics
This section begins by defining economics as "the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants." The author, Roger Leroy Miller, then compares needs (something essential for survival) with wants (anything else). He discusses choices that need to be made by individuals, businesses, and governments due to a scarcity of income, time, and resources to acquire everything wanted. He wraps up this section with a discussion of the factors of production—land, labor, capital, entrepreneurship, and technology.
In this section, the author defines trade-offs as "exchanging one thing for the use of another." He explains that the cost of a trade-off is what is given up to get something else, also known as an "opportunity cost." This could be time, money, or another resource. He then defines and demonstrates how a production possibility curve is used to compare amounts of goods that can be produced utilizing fixed resources over a specified time period.
What Do Economists Do?
This section begins with a comparison of microeconomics ("the branch of economic theory that deals with behavior and decision making by small units such as individuals and firms") and macroeconomics ("the branch of economic theory dealing with the economy as a whole and decision making by large units such as governments"). The author then defines economy and discusses economic models. He explains what they show and how they are created, tested, and applied to real life. The author concludes with a discussion on schools of economic thought, explaining that although economists deal with facts, economists will often have differing theories based on their individual and unique perspectives.