Economics

Key concepts discussed in this chapter: economics as a social science, positive economics, normative economics, economic model, economic theory, economic way of thinking, production possibilities frontier (PPF), opportunity cost, productive efficiency, allocative efficiency, Pareto efficiency, specialization, absolute advantage, comparative advantage

Economics as a science

The Many Uses of Economic Tools

Economics was first developed to study the production and distribution of goods and services. he boundaries of the field are much broader now. For example, economists have expanded their sights from the wealth of nations to the health of nations, with goals to get more out of our limited health care resources.

Economists have long been drawn to the idea that the economy might follow predictable mathematical laws, much like Newton’s laws of motion. Just as Newton reduced the complexities of the physical world to three fundamental equations, could similar relationships be found in the ever-changing world of markets?

One of the many reasons that people save is to send their children to college. Another is to make a down payment on a home. Yet another is for those years after people stop working. There are different methods of saving for retirement, each having different risks. As you read this section, you’ll learn about special savings plans and the amount of risk involved in these investments.

Unemployment is a challenging and distressing experience, often compared to a major life upheaval like a severe accident or a difficult divorce. Those affected face financial uncertainty, stress, and lifestyle adjustments, such as depleting savings, downsizing, or relocating to a more affordable home. Even after finding new employment, the job may pay less than the previous one, impacting an individual’s self-worth, family relationships, and overall well-being.