Economics
Economic Way of Thinking
The "Economic Way of Thinking" refers to the analytical approach used in economics to understand human behavior and decision-making in the context of scarcity. It involves rational decision-making based on cost-benefit analysis, the allocation of limited resources to satisfy unlimited wants, and the study of incentives that influence individual and societal choices.
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7 Key excerpts on "Economic Way of Thinking"
eBook - PDFMicroeconomics
Private and Public Choice
- James Gwartney, Richard Stroup, Russell Sobel, David Macpherson(Authors)
- 2017(Publication Date)
- Cengage Learning EMEA(Publisher)
P A R T 1 The Economic Way of Thinking Economics is about how people choose. The choices we make influence our lives and those of others. Your future will be influenced by the choices you make with regard to education, job opportunities, savings, and investment. Furthermore, changes in technology, demographics, communications, and transportation are constantly altering the attrac- tiveness of various options and the opportunities available to us. The Economic Way of Thinking is all about how incentives alter the choices people make. It can help you make better choices and en- hance your understanding of our dynamic world. Life is a series of choices Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-300 F O C U S • What is scarcity, and why is it important even in relatively wealthy economies? • How does scarcity differ from poverty? Why does scarcity necessitate rationing and cause competition? • What is the Economic Way of Thinking? What is different about the way economists look at choices and human decision-making? • What is the difference between positive and normative economics? Economist, n.–A scoundrel whose faulty vision sees things as they really are, not as they ought to be. —Daniel K. Benjamin, after Ambrose Bierce The Economic Approach Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-300 3 Welcome to the world of economics. In recent years, economics has often been front-page news, and it affects all of our lives. The boom and bust of the housing market, the recession of 2008 and the slow recovery, inter - r r est rates near zero, a volatile stock market, falling oil and gasoline prices, the soaring costs of a college edu- cation and poor job opportunities for graduates—all of these have been in the news and have turned the lives of many American upside down.
eBook - PDF- James D Gwartney, Richard Stroup, J. R. Clark(Authors)
- 2014(Publication Date)
- Academic Press(Publisher)
It helps us understand the interrelationships among complex and often seemingly unrelated events in the real world. A better understanding of cause and effect relationships will enhance our ability to predict accurately the probable and possible consequences of alternative policy choices. Economics has sometimes been called the science of common sense. This is as it should be. After all, common sense is nothing more than a set of beliefs based on sound theories that have been tested over a long period of time and found to be accurate. Seven Guideposts to Economic Thinking The Economic Way of Thinking involves the incorporation of certain guidelines-some would say the building blocks of basic economic theory—into one's thought process. Once these guidelines are incorporated, we believe that economics can be a relatively easy subject to master. Students who have difficulty with economics almost always do so because they fail to develop the Economic Way of Thinking. Their thought process is not 2 The philosophical views of Professor Friedman and Professor Samuelson differ considerably. They are often on opposite sides of economic policy issues. 6 PART ONE THE Economic Way of Thinking Economizing Behavior: Choosing with the objective of gaining a specific benefit at the least possible cost. A corollary of economizing behavior implies that when choosing among items of equal cost, individuals will choose the option that yields the greatest benefit. Utility: The benefit or satis-faction expected from a choice or course of action. consistently directed by a few simple economic concepts or guideposts. Students who do well in economics learn to utilize these basic concepts and allow their thought process to be governed by them. We will outline and discuss seven principles that are fundamental characteristics of economic thinking and es-sential to the understanding of the economic approach. /. Scarce Goods Have a Cost—There Are No Free Lunches.
eBook - PDFMicroeconomics for MBAs
The Economic Way of Thinking for Managers
- Richard B. McKenzie, Dwight R. Lee(Authors)
- 2016(Publication Date)
- Cambridge University Press(Publisher)
Video course introduction (17 minutes) 2. Introduction to the Economic Way of Thinking, 1 (28 minutes) 3. The Economic Way of Thinking, 2 (29 minutes) The bottom line The key takeaways fro m Chapter 1 a re the following: 1 Economics is a discipline best described as the study of human interaction in the context of scarcity. It is the study of how, individually and collectively, people use their scarce resources to satisfy as many of their wants as possible. The economic method is founded in a set of presuppositions about human behavior on which economists construct theoretical models. 2 Economics is a way of thinking about virtually everything, including the issues that man-agers confront daily. Economics is especially applicable to business dealings in markets where economic interests (“what can you do for me and I can do for you on financial terms”) are dominant. Economics’ ability to explain behavior in personal realms (where a variety of motives, including love and beneficence, can have powerful coordinating effects on behavior) loses some (but not all) of its force. 3 Communally owned property is a common cause of resource misuse and overuse. Private property rights matter because they affect people’s incentives to use scarce resources. This is because they affect people’s rewards from effectively utilizing scarce resources. They also affect the costs they incur from misusing and abusing scarce resources. 4 Property rights are crucial to the efficient allocation of resources that are depleted or devalued in some way when used and when transaction costs are low. They can be a problem when transaction costs are high and the use of the resource does not deplete the resource or devalue it. 5 Not all potential tragedies of the commons need to be resolved through private property rights and government regulation. Voluntary associations and firms are means by which the overuse of communally owned resources has been abated.
eBook - PDF- Steven Landsburg(Author)
- 2013(Publication Date)
- Cengage Learning EMEA(Publisher)
C H A P T E R 19 What Is Economics? 19.1 The Nature of Economic Analysis Economics is one of several sciences that attempt to explain and predict human behavior. It is distinguished from the other behavioral sciences (psychology, anthro-pology, sociology, and political science) by its emphasis on rational decision making under conditions of scarcity. Economists generally assume that people have well-defined goals and preferences and that they allocate their limited resources so as to maximize their own well-being in accordance with those preferences. Stages of Economic Analysis Much of economic analysis can be divided into three stages. First, we make explicit assumptions about people ’ s goals and about the constraints on their behavior. This allows us to formulate an economic problem: Within the limits imposed by the constraints, what is the best way to achieve the goals? Second, we determine the solutions to these problems, and we see how the solutions vary in response to changes in the constraints. We assume that the individuals under study can also solve their economic problems and that they behave accordingly. We describe this by saying that the individuals optimize. Third, we examine the interactions among individuals: Each person ’ s behavior affects each other person ’ s constraints. In view of these interac-tions, we are often able to conclude that there is only one possible outcome in which all individuals are simultaneously optimizing. Such an outcome is called an equilibrium. We shall now examine each of these stages in more detail. Formulating the Individual ’ s Economic Problem The first step in economic analysis is to make explicit assumptions about individuals ’ desires and the nature of the constraints that they face. For example, we assume that a consumer has indifference curves that are convex toward the origin and must select a market basket that is within his budget line.
eBook - ePub- Enrico Colombatto(Author)
- 2016(Publication Date)
- Taylor & Francis(Publisher)
1 The Economic Way of Thinking DOI: 10.4324/9781315658988-2 1.1 On the nature of economics and the importance of methodology Why should one be interested in economics and what kind of discipline is it? Simply put, economics is important because it offers a powerful set of conceptual tools that help us understand how individuals behave under scarcity, how they strive to improve their well-being without resorting to violence, and how they respond to the conditions and constraints that frame or otherwise affect their choices. In short, economics is about explaining people's behaviour and interactions when they cannot satisfy all their wishes and aspirations, i.e. when they must choose among different options and when they must explore the opportunities offered by cooperation and exchange. In this light, then, economics is clearly a social science, since individuals operate in a social context defined by other people's actions and by the rules that apply to their community. Moreover, since observing and making sense of what one sees do not involve any form of judgement, economics can be regarded as a value-free discipline with no normative connotations. In other words, the economist's effort to appreciate how people act does not mean that he knows how agents ought to act, or that he is authorised to take action or to command them to change whenever he sees people deviating from his expectations or wishes. Of course, one can evaluate the moral content of individual preferences, as well as of the outcomes that interactions produce. Likewise, and perhaps more importantly, the economist should be aware that moral standards, culture and tradition, historical accidents and prejudice do influence individuals’ preferences and, therefore, choices and human action
eBook - PDF- Thomas M. Power(Author)
- 2020(Publication Date)
- Taylor & Francis(Publisher)
What is usually relevant in decision making is mar-ginal value, the value of small changes in the quality and quantity of each of these. It is this focus on the margin where decisions are made that moves economics away from the larger philosophic questions. 4. ECONOMICS AS THE SCIENCE OF VALUE AND CHOICE Economics received its current modern definition from Lionel. Robbins in his 1935 book, An Essay on the Nature and Significance of Economic Science, where he defined economics as the science which studies human behavior as a relationship between ends and scarce means which have alternative uses. Note how broadly Robbins has cast the economist 1 s net. Any problem which involves the pursuit of specifiable, multiple-objectives for which the means available are scarce and usu-able for the pursuit of more than one objective is an econo-mic problem. Clearly in that sense the use of the resources of the social and physical environment and the services flow-ing from them which we have labeled the QOL is an economic problem and behavior with respect to them can be subjected to *Ibid, pp. 45-46. 87 economic analysis. One thing the study of that behavior can tell us is how individuals vaZue the goods and services which flow from these environments as compared to the goods and ser-vices they can obtain from manufacturing and service activity. The private human made environment of the home, yard, restau-rant, and theater provide services to individuals as does the social and natural environment. The economic analysis we have tried to carry out has asked what human behavior in pursuit of each of these types of environments tells us about the rela-tive valuations individuals have made. It is important to note that economics focuses not on the internal psychological state of the individual but on the ex-ternal environment, the social and material condition which influence that internal state.
eBook - PDFGames and Human Behavior
Essays in Honor of Amnon Rapoport
- David V. Budescu, Ido Erev, Rami Zwick, David V. Budescu, Ido Erev, Rami Zwick(Authors)
- 2019(Publication Date)
- Psychology Press(Publisher)
There are eight basic assumptions. In each case we highlight the contrast between the traditional views of psychologists and economists and examine the degree to which recent research managed to reduce the gap between the two disciplines in this context. Before reviewing the differences between economics and psychology it is instructive to speculate on their origin. In our opinion, the two disciplines have distinct views on human choice behavior simply because they examine the same behavior from different perspectives that are dictated by their respective scopes and interests. Psychology is usually defined as the study of the thought processes and behaviors of humans and other animals in their interactions with their environments. Among other things, psychologists study sensory perception, emotion, motivation, problem solving, use of language and other mental tasks, group interaction, adjustment to social and physical environments, and the normal and abnormal development of these processes. Economics is traditionally considered to be the study of how human beings allocate resources to produce various commodities and how those goods are distributed for consumption among all members of a society. A basic tenet of economic theory is that resources are scarce, or at least limited, and that not all human needs and desires can be met. A major concern of economists is how to distribute these resources in the most efficient and equitable way. This volume focuses on the domain where the two disciplines intersect -the study of human choice behavior. As the previous definitions indicate, this domain is but a small subset of their respective topics of inquiry. The tendency in every scientific field is to adopt assumptions and methodologies that apply to the largest possible number of content subareas (in fact, the boundaries of a discipline are delineated by the commonalties underlying all its subdomains).
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