1. ©2005 McGraw-Hill Ryerson Ltd. Chapter 1 1 SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGE The Nature and Method of Economics “ Want is a growing giant whom the coat of Have was never large enough to cover.” -Ralph Waldo Emerson

2. ©2005 McGraw-Hill Ryerson Ltd.Chapter 12 In this chapter you will learn 1.1 The Ten Key Concepts to retain for a lifetime 1.2 About the economic way of thinking 1.3 How economists construct theories 1.4 The distinction between microeconomics and macroeconomics 1.5 The pitfalls to objective thinking

3. ©2005 McGraw-Hill Ryerson Ltd.Chapter 13 Chapter 1 Topics 1.1 Ten Key Concepts to Retain for a Lifetime 1.2 The Economic Perspective 1.3 Economic Methodology 1.4 Macroeconomics & Microeconomics 1.5 Pitfalls to Objective Thinking

4. ©2005 McGraw-Hill Ryerson Ltd.Chapter 14 Ten Key Concepts The Individual 1.Facing trade-offs 2.Opportunity Costs 3.Choosing a Little More or Less 4.The Influence of Incentives

5. ©2005 McGraw-Hill Ryerson Ltd.Chapter 15 Ten Key Concepts Interaction Among Individuals 5.Specialization & Trade 6.The Effectiveness of Markets 7.The Role of Governments

6. ©2005 McGraw-Hill Ryerson Ltd.Chapter 16 Ten Key Concepts The Economy as a Whole & the Standard of Living 8.Production & the Standard of Living 9.Money & Inflation 10.Inflation-Unemployment trade-off

7. ©2005 McGraw-Hill Ryerson Ltd.Chapter 17 Chapter 1 Topics 1.1 Ten Key Concepts to Retain for a Lifetime 1.2 The Economic Perspective 1.3 Economic Methodology 1.4 Macroeconomics & Microeconomics 1.5 Pitfalls to Objective Thinking

8. ©2005 McGraw-Hill Ryerson Ltd.Chapter 18 The Economic Perspective Scarcity & ChoiceScarcity & Choice Rational behaviourRational behaviour Marginal Analysis: Benefits & CostsMarginal Analysis: Benefits & Costs

9. ©2005 McGraw-Hill Ryerson Ltd.Chapter 19 Chapter 1 Topics 1.1 Ten Key Concepts to Retain for a Lifetime 1.2 The Economic Perspective 1.3 Economic Methodology 1.4 Macroeconomics & Microeconomics 1.5 Pitfalls to Objective Thinking

10. ©2005 McGraw-Hill Ryerson Ltd.Chapter 110 Economic Methodology The scientific method: observe the worldobserve the world formulate hypothesesformulate hypotheses test by comparing actual outcomes to the hypothesized predictionstest by comparing actual outcomes to the hypothesized predictions accept, reject, modify hypotheses as indicatedaccept, reject, modify hypotheses as indicated continue testing against the factscontinue testing against the facts  theory or model  law or principle

11. ©2005 McGraw-Hill Ryerson Ltd.Chapter 111 Economic Methodology Deriving Theories TerminologyTerminology GeneralizationsGeneralizations Other-Things-Equal AssumptionOther-Things-Equal Assumption AbstractionsAbstractions Graphical ExpressionGraphical Expression

12. ©2005 McGraw-Hill Ryerson Ltd.Chapter 112 Economic Methodology Policy Economics State the goalState the goal Determine the policy optionsDetermine the policy options Implement & evaluate the policy that was selectedImplement & evaluate the policy that was selected

13. ©2005 McGraw-Hill Ryerson Ltd.Chapter 113 THEORETICAL ECONOMICS POLICY ECONOMICS Theories Facts Figure 1-1

14. ©2005 McGraw-Hill Ryerson Ltd.Chapter 114 Economic Goals economic growtheconomic growth

15. ©2005 McGraw-Hill Ryerson Ltd.Chapter 115 Economic Goals economic growtheconomic growth full employmentfull employment

16. ©2005 McGraw-Hill Ryerson Ltd.Chapter 116 Economic Goals economic growtheconomic growth full employmentfull employment economic efficiencyeconomic efficiency

17. ©2005 McGraw-Hill Ryerson Ltd.Chapter 117 Economic Goals economic growtheconomic growth full employmentfull employment economic efficiencyeconomic efficiency price-level stabilityprice-level stability

18. ©2005 McGraw-Hill Ryerson Ltd.Chapter 118 Economic Goals economic growtheconomic growth full employmentfull employment economic efficiencyeconomic efficiency price-level stabilityprice-level stability economic freedomeconomic freedom

19. ©2005 McGraw-Hill Ryerson Ltd.Chapter 119 Economic Goals economic growtheconomic growth full employmentfull employment economic efficiencyeconomic efficiency price-level stabilityprice-level stability economic freedomeconomic freedom equitable distribution of incomeequitable distribution of income cheese please

20. ©2005 McGraw-Hill Ryerson Ltd.Chapter 120 Economic Goals economic growtheconomic growth full employmentfull employment economic efficiencyeconomic efficiency price-level stabilityprice-level stability economic freedomeconomic freedom equitable distribution of incomeequitable distribution of income economic securityeconomic security

21. ©2005 McGraw-Hill Ryerson Ltd.Chapter 121 Economic Goals economic growtheconomic growth full employmentfull employment economic efficiencyeconomic efficiency price-level stabilityprice-level stability economic freedomeconomic freedom equitable distribution of incomeequitable distribution of income economic securityeconomic security balance of tradebalance of trade

22. ©2005 McGraw-Hill Ryerson Ltd.Chapter 122 Economic Goals subject to interpretationsubject to interpretation may be complementarymay be complementary may conflict, requiring trade-offsmay conflict, requiring trade-offs priorities must be setpriorities must be set

23. ©2005 McGraw-Hill Ryerson Ltd.Chapter 123 Chapter 1 Topics 1.1 Ten Key Concepts to Retain for a Lifetime 1.2 The Economic Perspective 1.3 Economic Methodology 1.4 Macroeconomics & Microeconomics 1.5 Pitfalls to Objective Thinking

24. ©2005 McGraw-Hill Ryerson Ltd.Chapter 124Macroeconomics

25. ©2005 McGraw-Hill Ryerson Ltd.Chapter 125Microeconomics

26. ©2005 McGraw-Hill Ryerson Ltd.Chapter 126 Positive & Normative Economics POSITIVE STATEMENTS.… based upon facts & cause-and-effect relationshipsbased upon facts & cause-and-effect relationships what iswhat is without value judgmentswithout value judgments NORMATIVE STATEMENTS… based upon subjective beliefsbased upon subjective beliefs what ought to bewhat ought to be predictions are positive if they are based on what future facts will be predictions are positive if they are based on what future facts will be

27. ©2005 McGraw-Hill Ryerson Ltd.Chapter 127 Chapter 1 Topics 1.1 Ten Key Concepts to Retain for a Lifetime 1.2 The Economic Perspective 1.3 Economic Methodology 1.4 Macroeconomics & Microeconomics 1.5 Pitfalls to Objective Thinking

28. ©2005 McGraw-Hill Ryerson Ltd.Chapter 128 Pitfalls to Objective Thinking

29. ©2005 McGraw-Hill Ryerson Ltd.Chapter 129 Pitfalls to Objective Thinking BiasesBiases

30. ©2005 McGraw-Hill Ryerson Ltd.Chapter 130 Pitfalls to Objective Thinking BiasesBiases Loaded TerminologyLoaded Terminology

31. ©2005 McGraw-Hill Ryerson Ltd.Chapter 131 Pitfalls to Objective Thinking BiasesBiases Loaded TerminologyLoaded Terminology DefinitionsDefinitions

32. ©2005 McGraw-Hill Ryerson Ltd.Chapter 132 Pitfalls to Objective Thinking BiasesBiases Loaded TerminologyLoaded Terminology DefinitionsDefinitions Fallacy of CompositionFallacy of Composition

33. ©2005 McGraw-Hill Ryerson Ltd.Chapter 133 Pitfalls to Objective Thinking BiasesBiases Loaded TerminologyLoaded Terminology DefinitionsDefinitions Fallacy of CompositionFallacy of Composition Causation FallaciesCausation Fallacies –Post Hoc Fallacy –Correlation versus Causation A Look AheadA Look Ahead ??

34. ©2005 McGraw-Hill Ryerson Ltd.Chapter 134 Chapter 1 Topics 1.1 Ten Key Concepts to Retain for a Lifetime 1.2 The Economic Perspective 1.3 Economic Methodology 1.4 Macroeconomics & Microeconomics 1.5 Pitfalls to Objective Thinking