This chapter introduces key concepts in economics. Microeconomics studies individual decision-making of households and firms, while macroeconomics examines economy-wide phenomena. Economists assume individuals rationally pursue self-interest, responding to incentives. Economics is a science that uses models and data to predict behavior, though some question full rationality. Positive economics describes what is, while normative economics involves value judgments about what should be.

1. Chapter 1 The Nature of Economics

2. Introduction Rhesus monkeys are willing to forgo 10% of their “income” of cherry juice to examine photos of leading and attractive members of their group. This behavior mirrors our willingness to purchase celebrity magazines. Nevertheless, economists who study making choices in response to rewards or inducements, propose some are willing to pay to be viewed by others as leading and attractive members of our society. What can economists tell us about why people purchase items that attract attention such as flashy sports cars or designer clothing?

41. End of Chapter 1 The Nature of Economics