What’s in This Chapter?

In this unit, we discuss how to define economics and look at what the study of economics is all about.

We study economics to determine how to best increase our nation’s wealth. In this definition, wealth includes tangible (cars, houses, food), as well as intangible goods and services (protection from violence, clean air, entertainment, leisure time).

The production possibilities curve in this unit shows us the production choices we face given a certain amount of resources. No matter how abundant our resources are, they are limited, and we have to make choices regarding what and how much we want to produce.

Section 4 describes the circular flow model. This model paints a simplified picture of the main economic activities in a country.

In our country and other relatively free-market economies, the decision as to what and how much to produce is made primarily by the buyers and sellers of the products. The government exerts relatively little control over prices of products. Section 5 discusses the three main economic systems, which reflect the various degrees of government involvement: capitalism, socialism, and communism.

Section 6 defines and explains important fundamental economic concepts, such as the fallacy of composition, the fallacy of cause and effect, economic growth, opportunity cost, positive and normative economics, and real and nominal prices.

The last section discusses the increasingly important role of critical thinking in economics, and suggests ways that you can increase your own critical thinking skills.