Bethel Universtiy Discussion Post The response to the facilitator’s original post should be a minimum of 250 words. The student’s initial post must be supp
Bethel Universtiy Discussion Post The response to the facilitator’s original post should be a minimum of 250 words. The student’s initial post must be supported by at least 2 reference(s). Approved sources for this course include the course textbook and scholarly articles from the Bethel library databases. No other source information is acceptable. In Chapter 1 of this week’s readings, we looked at how economists assume people act in their
own self-interest and that they do so rationally. The focus on self-interest is often confused
with the negative term of greed. Explain how people acting in their own self-interest is
actually beneficial to society as a whole. Include in your explanation what it means for people
to be rational. Does this mean they don’t make mistakes?
To write your Discuss post, follow the steps in this tutorial:
https://bethelu.libguides.com/howtoresearch
6e
Exploring Economics
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ROBERT L. SEXTON
Pepperdine University
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Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
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Exploring Economics, 6e
© 2013, 2011 South-Western, Cengage Learning
Robert L. Sexton
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ISBN-13: 978-1-111-97030-7
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Printed in the United States of America
1 2 3 4 5 6 7 16 15 14 13 12
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1
c h a p t e r
The Role and Method of
Economics
1.1
Economics: A Brief Introduction
1.2
Economic Behavior
1.3
Economic Theory
1.4
1.5
o n e
As you begin your first course in economics, you may be
asking yourself why you’re here. What does economics
have to do with your life? Although we can list many good reasons
to study economics, perhaps the best reason is that many issues in our lives
Pitfalls to Avoid in Scientific Thinking are at least partly economic in character.
A good understanding of economics would allow you to answer
Positive Statements and Normative
such questions as, Why do 10 a.m. classes fill up more quickly than
Statements
8 a.m. classes during registration? Why is it so hard to find an apartment
Was San Francisco, Berkeley, and New York? Why is teenage
in cities such
APPENDIX: Working with Graphs
Fuse/Jupiterimages
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
3
chapter 1 The Role and Method of Economics
study of economics improves your understanding of these and many other concerns.
Economics is a unique way of analyzing many areas of human behavior.
Indeed, the range of topics to which economic analysis can be applied is broad.
Many researchers discover that the economic approach to human behavior
sheds light on social problems that have been with us for a long time: discrimination, education, crime, divorce, political favoritism, and more. In fact,
your daily newspaper is filled with economics. You can find economics on the
W
domestic page, the international page, the business page, the sports page, the
I
entertainment page, and even the weather page—economics
is all around us.
However, before we delve into the details and
Lmodels of economics, it is important that we present an overview of how economists approach problems—their
L
methodology. How does an economist apply the logic of science to approach a
I should avoid in economic thinkproblem? And what are the pitfalls that economists
ing? We also discuss why economists disagree. S
NataliaYeromina/Shutterstock.com
nemployment higher than adult unemployment? Why is the price of your prescripu
tion drugs so high? How does inflation impact you and your family? Will higher
taxes on cigarettes reduce the number of teenagers smoking? If so, by how much?
Why do female models make more than male models? Why is it easier for college
graduates to find jobs in some years rather than others? Do houses with views
necessarily sell faster than houses without views? Why do people buy houses near
noisy airports? Why do U.S. auto producers like tariffs (taxes) on imported cars? Is
outsourcing jobs to India a good idea? Is globalization good for the economy? The
Why do female models make more
money than male models?
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What is economics?
A What is the economic problem?
What is scarcity?
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Economics—A Word with Many
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Economics: A Brief Introduction
1.1
Different Meanings
Some people think economics involves the study of the stock market and corporate finance,
2
and it does—in part. Others think that economics is concerned with the wise use of money
1 part. Still others think that economics
and other matters of personal finance, and it is—in
involves forecasting or predicting what business
6 conditions will be in the future, and again,
it does—in part. The word economics is, after all, derived from the Greek Oeconomicus,
1 affairs.
which referred to the management of household
Precisely defined, economics is the studyTof the choices we make among our many
wants and desires given our limited resources. What are resources? Resources are inputs—
S
land, human effort, and skills, and machines and factories, for instance—used to produce
goods and services. The problem is that our unlimited wants exceed our limited resources,
a fact that we call scarcity. That is, scarcity exists because human wants for goods and
services exceed the amount of goods and services that can be produced using all of our
available resources. So scarcity forces us to decide how best to use our limited resources.
This is the economic problem: Scarcity forces us to choose, and choices are costly because
economics the study of
choices we make among
our many wants and desires
given our limited resources
resources inputs used to
produce goods and services
scarcity exists because our
unlimited wants exceed our
limited resources
the economic problem
scarcity forces us to choose,
and choices are costly
because we must give up
other opportunities that we
value
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
4
Robert L. Sexton
PART 1 Introduction
we must give up other opportunities that we value. Consumers
must make choices on what to buy, how much to save, and how
much to invest of their limited incomes. Workers must decide what
types of jobs they want, when to enter the workforce, where they
will work, and number of hours they wish to work. Firms must
decide what kinds of goods and services to produce, how much
to produce, and how to produce those goods and services at the
lowest cost. That is, consumers, workers, and firms all face choices
because of scarcity, which is why economics is sometimes called the
study of choice.
The economic problem is evident in every aspect of our lives. You
may find that the choice between shopping for groceries and browsing at the mall, or between finishing a research paper and going to a
movie, is easier to understand when you have a good handle on the
“economic way of thinking.”
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Economics
Is All Around Us
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The tools
L of economics are far reaching. In fact, other social scientists
have accused economists of being imperialistic because their tools
I outside the formal area of economics, like crime, education,
have been used in so many fields
marriage, divorce, addiction, S
finance, health, law, politics, and religion. Every individual,
business, social, religious, and governmental organization faces the economic problem. Every
,
Newspapers and websites are filled with articles
related to economics—either directly or indirectly.
News headlines may cover topics such as unemployment, deficits, financial markets, health care, Social
Security, energy issues, war, global w
arming, and so on.
ECS
economic
content
standards
Productive resources are
limited. Therefore, people
cannot have all the goods
and services they want. As
a result, they must choose
some things and give up
others.
© Pictorial Press Ltd/Alamy
in the
society, whether it is capitalistic, socialistic, or totalitarian, must also face the economic
problem of scarcity, choices, and costs.
Even time has an economic
K dimension. In fact, in modern culture, time has become
perhaps the single most precious resource we have. Everyone has the same limited amount
of time per day, and how weA
divide our time between work and leisure (including study,
Who Studies
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Economics?
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ly
R paths. Here is a short list of some relative
well-known people who studied economics in college.
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Politicians, Policy Makers,
and Supreme Court Justices
George H. W. Bush, former U.S. President (Yale)
Ronald Reagan, former U.S. President
(Eureka College)
Gerald Ford, former U.S. President
(University of Michigan)
Arnold Schwarzenegger, body builder/actor/
governor (University of Wisconsin)
Sandra Day-O’Connor, retired U.S. Supreme Court
Justice (Stanford)
Stephen Breyer, U.S. Supreme Court Justice
(Stanford)
(continued)
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
5
chapter 1 The Role and Method of Economics
in the
Who Studies Economics? (Cont.)
Anthony Kennedy, U.S. Supreme Court Justice
(Stanford and London School of Economics)
Kofi Annan, former Secretary General of the
United Nations (Macalester College)
Billionaires
Sam Walton, founder of Walmart (University of
Missouri)
Warren Buffett, financier (Columbia School of
Business, Masters in Economics)
Meg Whitman, former President and CEO of
eBay, Inc. (Princeton)
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Ted Turner, media tycoon (Brown)
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Steve Ballmer, CEO of Microsoft (Harvard)
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Donald Trump, real-estate/television mogul
(University of Pennsylvania—Wharton)L
Paul Otellini, President and CEO of Intel
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(University of San Francisco)
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Celebrities
John Elway, former NFL quarterback (Stanford
University)
Mick Jagger, lead singer of the Rolling Stones
(London School of Economics)
Cate Blanchett, actress (Melbourne University)
Scott Adams, cartoonist, creator of Dilbert
(Hartwick College)
Tiger Woods, golfer (Stanford)
Bill Belichick, NFL head coach, New England
Patriots (Wesleyan University)
According to Bob McTeer, former President and
CEO of the Federal Reserve Bank of Dallas, “My
take on training in economics is that it becomes
increasingly valuable as you move up the career
ladder. I can’t think of a better major for corporate
CEOs, congressmen (and women), or presidents of
the United States. You’ve learned a systematic, disciplined way of thinking that will serve you well.”
© Flying Colours Ltd/
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sleep, exercise, and so on) is a distinctly economic matter. If we choose more work, we must
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sacrifice leisure. If we choose to study, we must sacrifice time with friends or time spent
S we decide to do, then, has an economic
sleeping or watching television. Virtually everything
dimension.
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Living in a world of scarcity involves trade-offs. As you are reading this text, you are
A time on Facebook, text messaging with
giving up other things you value: shopping, spending
friends, going to the movies, sleeping, or working
N out. When we know what the trade-offs
are, we can make better choices from the options all around us, every day. George Bernard
D
Shaw stated, “Economy is the art of making the most of life.”
Why can’t we ever
eliminate scarcity?
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SECTION QUIZ
2
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a. it only needs to be limited.
b. it is not possible to produce any more of the6good.
c. our unlimited wants exceed our limited resources.
1
d. our limited wants exceed our unlimited resources.
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Which of the following is true of resources?
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1. If a good is scarce,
2.
a. Their availability is unlimited.
b. They are the inputs used to produce goods and services.
c. Increasing the amount of resources available could eliminate scarcity.
d. Both b and c.
(continued)
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
6
PART 1 Introduction
S E C T I O N Q U I Z (Cont.)
3. If scarcity were not a fact,
a. people could have all the goods and services they wanted for free.
b. it would no longer be necessary to make choices.
c. poverty, defined as the lack of a minimum level of consumption, would also be eliminated.
d. all of the above would be true.
4. Economics is concerned with
a. the choices people must make because resources are scarce.
b. human decision makers and the factors that influence their choices.
c. the allocation of limited resources to satisfy unlimited wants.
d. all of the above.
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Why does scarcity force us to make choices?
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Why are choices costly?
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What is the economic problem?
Why do even “non-economic” issues have an economicI dimension?
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1. What is the definition of economics?
4.
5.
2. b
3.
Answers: 1. c
2.
3. d 4. d
1.2
Do people really pursue
their self-interest? Do people really think that way?
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What is self-interest?
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Why is self-interest not the same as
selfishness?
D
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Self-Interest
Economic Behavior
What is rational behavior?
Economists assume that most individuals act as if they are motivated by self-interest and
respond in predictable ways 2
to changing circumstances. In other words, self-interest is a
good predictor of human behavior
1 in most situations. For example, to a worker, self-interest
means pursuing a higher-paying job and/or better working conditions. To a consumer, it
6 satisfaction from limited income and time.
means gaining a higher level of
We seldom observe employees
1 asking employers to cut their wages and increase their
workload to increase a company’s profits. And how often do you think customers walk into
T
a supermarket demanding to pay more for their groceries? In short, a great deal of human
S predicted by assuming that most people act as if they are
behavior can be explained and
motivated by their own self-interest in an effort to increase their expected personal satisfaction. When people make choices, they often do not know with certainty which choice is best.
But they expect the best outcome from that decision—the one that will yield the greatest
satisfaction.
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
7
Critics will say people don’t think that way, and the critics
might be right. But economists are arguing that people act that
way. Economists are observing and studying what people do—their
actions. We largely leave what people think to psychologists and
sociologists.
There is no question that self-interest is a powerful force that
motivates people to produce goods and services. But self-interest
can include benevolence. Think of the late Mother Teresa, who
spent her life caring for others. One could say that her work was
in her self-interest, but who would consider her actions selfish?
Similarly, workers may be pursuing self-interest when they choose
to work harder and longer to increase their charitable giving or saving for their children’s education. That is, self-interest to an economist is not a narrow monetary self-interest. The enormous amount
of money and time donated to victims of Hurricane Katrina is an
example of self-interest too—the self-interestW
was to help others in
need. However, our charitable actions for others …
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