Unit 1: Introduction to Economics: What Is It?
Before we dive into the principles of microeconomics, we need to define some of the major ideas that lie at the heart of economics. What is the economic way of thinking? What do economists mean when they discuss market structure and the invisible hand? In this unit we identify and define these terms before addressing the driving principles behind microeconomics: the idea that individuals and firms (economic agents) make rational choices based on self-interest. These decisions are necessary, because resources are scarce. In other words, no good or item is infinitely available. We will also introduce a number of economic models, the assumptions and constraints associated with each, and the ways they help us better understand real-life situations.
Completing this unit should take you approximately 9 hours.
The concept of opportunity cost is critical to understanding individual choice, because you always have to give up something in order to get another thing. In other words, the real cost of purchasing good A is equal to the value of the next best alternative (good B) that you give up in order to purchase good A. For example, what would you rather be doing instead of studying this course? The task that you have forgone in order to study economics is the opportunity cost of studying economics.
As you read the materials in this subunit, pay particular attention to what is meant by the "economic way of thinking." You will want to get used to using this lens or mode of thinking as a way to understand the work that economists do and why economic principles are so widely applicable across a number of fields. This subunit also examines the key differences between microeconomics and macroeconomics and between normative economics and positive economics.
Economics communicates information in a variety of formats: text, tables, graphs, mathematical expressions, and more. The following resources explain the form and function of a number of these formats, as well as their use within the context of economics.
Completing this section is optional. However, this course will expect you to have the following competencies, so be sure to review this subunit if you are not confident about your skill level:
- Read data from a table and transform it into a graph.
- Understand the coordinate plane (x, y) and its use for constructing graphs.
- Calculate the slope of a linear graph and be able to explain what the numeric value of a slope means and the significance of negative versus positive slopes.
- Understand the linear equation of a line, .
- Explain what an intercept is and how to determine it.
This model is an application of the production possibility frontier studied in the previous section, albeit in a global set-up. In this subunit, we will bring the argument for international trade, specialization, comparative advantage, and the resulting economic growth to light. The mechanics of comparative advantage will reveal why it would benefit a country to import goods it produces at home.
Absolute and comparative advantage is a difficult topic. This quiz challenges you to use analytical reasoning to explore what absolute advantage and comparative advantage actually mean, what opportunity costs are, and the real choices that national economies have to make.