• Economics is a social science that studies how people choose to use their scarce resources to satisfy their needs.
• Economists use the scientific method to form generalizations, economics theories and laws, and solutions to economic problems.
• Common fallacies in reasoning lead to erroneous generalizations, theories, or solutions.
• Economists play a key role in analyzing economic information and forming policies in a number of business, academic, and government settings.
• Economists often disagree with one another due to different modeling and forecasting techniques, and different values or beliefs.
Five Basic Economic Principles
• Because resources are scarce, people must choose between competing wants or needs; all economic choices involve costs.
• People's economic choices, decisions, or actions are influenced by market incentives such as prices or profits.
• Competitive markets promote allocative and technical efficiency.
• Government interventions in the economy address market shortcomings by providing public goods, social programs, and business regulations.
• Specialization by firms and by economic regions promotes productivity and economic interdependence.
Schools of Economic Thought: An Historical Overview
• Mercantilists favored the regulation of trade, and the use of business subsidies, to create a favorable balance of trade.
• Physiocrats favored the primacy of agriculture and laissez-faire principles to limit government interventions in the economy.
• Classical economists supported self-regulating competitive markets, including free trade, to promote prosperity.
• Marginalists argued that rational decision making requires people to consider the additional costs and the additional benefits of their decisions.
• Marxists supported a revolutionary form of socialism to end capitalism and its institutions such as private property and profit.
• Keynesians supported the aggressive use of fiscal policy tools to regulate aggregate demand and thereby promote economic growth and stability.