Summary 1:

Choices are forced on us by scarcity; economists study the choices

that people make. Scarce goods are those for which the choice of one
alternative requires giving up another. The opportunity cost of any
choice is the value of the best alternative forgone in making that
choice. Some key choices assessed by economists include what to
produce, how to produce it, and for whom it should be produced.
Economics is distinguished from other academic disciplines that
also study choices by an emphasis on the central importance of
opportunity costs in evaluating choices, the assumption of
maximizing behavior that serves the interests of individual decision
makers, and a focus on evaluating choices at the margin.
Economic analyses may be aimed at explaining individual choice or
choices in an individual market; such investigations are largely the
focus of microeconomics. The analysis of the impact of those
individual choices on such aggregates as total output, the level of
employment, and the price level is the concern of macroeconomics.
Working within the framework of the scientific method, economists
formulate hypotheses and then test them. These tests can only
refute a hypothesis; hypotheses in science cannot be proved.
Because of the complexity of the real world, economists rely on
models that rest on a series of simplifying assumptions. The models
are used to generate hypotheses about the economy that can be
tested using real-world data. Statements of fact and hypotheses are
positive statements. Normative statements, unlike positive
statements, cannot be tested and provide a source for potential
disagreement.Why does the fact that something is scarce require
that we make.
Summary 2:
Economics deals with choices. In this chapter we have examined
more carefully the range of choices in production that must be made
in any economy. In particular, we looked at choices involving the
allocation of an economy’s factors of production: labor, capital, and
natural resources. In addition, in any economy, the level of
technology plays a key role in determining how productive the
factors of production will be. In a market economy, entrepreneurs
organize factors of production and act to introduce technological
change. The production possibilities model is a device that assists us
in thinking about many of the choices about resource allocation in
an economy. The model assumes that the economy has factors of
production that are fixed in both quantity and quality. When
illustrated graphically, the production possibilities model typically
limits our analysis to two goods. Given the economy’s factors of
production and technology, the economy can produce various
combinations of the two goods. If it uses its factors of production
efficiently and has full employment, it will be operating on the
production possibilities curve. Two characteristics of the production
possibilities curve are particularly important. First, it is downward
sloping. This reflects the scarcity of the factors of production
available to the economy; producing more of one good requires
giving up some of the other. Second, the curve is bowed out. Another
way of saying this is to say that the curve gets steeper as we move
from left to right; the absolute value of its slope is increasing.
Producing each additional unit of the good on the horizontal axis
requires a greater sacrifice of the good on the vertical axis than did
the previous units produced. This fact, called the law of increasing
opportunity cost, is the inevitable result of efficient choices in
production—choices based on comparative advantage. The
production possibilities model has important implications for
international trade. It suggests that free trade will allow countries to
specialize in the production of goods and services in which they
have a comparative advantage. This specialization increases the
production of all goods and services. Increasing the quantity or
quality of factors of production and/or improving technology will
shift the production possibilities curve outward. This process is
called economic growth. In the last 50 years, economic growth in the
United States has resulted chiefly from increases in human capital
and from technological advance. Choices concerning the use of
scarce resources take place within the context of a set of
institutional arrangements that define an economic system. The
principal distinctions between systems lie in the degree to which
ownership of capital and natural resources and decision making
authority over scarce resources are held by government or by
private individuals. Economic systems include market capitalist,
mixed, and command socialist economies. An increasing body of
evidence suggests that market capitalist economies tend to be most
productive; many socialist and mixed economies are moving in the
direction of market capitalist systems. The presumption in favor of
market-based systems does not preclude a role for government.
Government is necessary to provide the system of laws on which
market systems are founded. It may also be used to provide certain
goods and services, to help individuals in need, and to regulate the
actions of individuals and firms.
Summary 3:
In this chapter we have examined the model of demand and supply.
We found that a demand curve shows the quantity demanded at
each price, all other things unchanged. The law of demand asserts
that an increase in price reduces the quantity demanded and a
decrease in price increases the quantity demanded, all other things
unchanged. The supply curve shows the quantity of a good or
service that sellers will offer at various prices, all other things
unchanged. Supply curves are generally upward sloping: an increase
in price generally increases the quantity supplied, all other things
unchanged. The equilibrium price occurs where the demand and
supply curves intersect. At this price, the quantity demanded equals
the quantity supplied. A price higher than the equilibrium price
increases the quantity supplied and reduces the quantity demanded,
causing a surplus. A price lower than the equilibrium price increases
the quantity demanded and reduces the quantity supplied, causing a
shortage. Usually, market surpluses and shortages are short-lived.
Changes in demand or supply, caused by changes in the
determinants of demand and supply otherwise held constant in the
analysis, change the equilibrium price and output. The circular flow
model allows us to see how demand and supply in various markets
are related to one another.