Page 43 - Krugmans Economics for AP Text Book_Neat

section I

Module 1: The Study of Economics
Module 2: Introduction to Macroeconomics
Module 3: The Production Possibilities Basic
Curve Model
Module 4: Comparative Advantage and Trade
Appendix: Graphs in Economics Economic
Economics by Example:
What’s to Love About Economics?
Concepts

COMMON GROUND

The annual meeting of the American Economic Associa- uals make choices. None of us lives like Robinson Crusoe,
tion draws thousands of economists, young and old, fa- alone on an island—we must make decisions in an environ-
mous and obscure. There are booksellers, business ment that is shaped by the decisions of others. Indeed, in
meetings, and quite a few job interviews. But mainly the our global economy even the simplest decisions you make—
economists gather to talk and listen. During the busiest say, what to have for breakfast—are shaped by the decisions
times, 60 or more presentations may be taking place si- of thousands of other people, from the banana grower in
multaneously, on questions that range from the future Costa Rica who decided to grow the fruit you eat to the
of the stock market to who does the cooking in two- farmer in Iowa who provided the corn in your cornflakes.
earner families. And because each of us depends on so many others—and
What do these people have in common? An expert on they, in turn, depend on us—our choices interact. So al-
the stock market probably knows very little about the eco- though all economics at a basic level is about individual
nomics of housework, and vice versa. Yet an economist choice, in order to understand behavior within an economy
who wanders into the wrong seminar and ends up listening we must also understand economic interaction—how my
to presentations on some unfamiliar topic is nonetheless choices affect your choices, and vice versa.
likely to hear much that is familiar. The reason is that all Many important economic interactions can be under-
economic analysis is based on a set of common princi- stood by looking at the markets for individual goods—for
ples that apply to many different issues. example, the market for corn. But we must also un-
Some of these principles involve individual One derstand economy-wide interactions in order to
choice—for economics is, first of all, understand how they can lead to the ups and
about the choices that individuals must downs we see in the economy as a whole.
make. Do you choose to work dur- In this section we discuss the study of economics
ing the summer or take a back- choose! and the difference between microeconomics
packing trip? Do you buy a new and macroeconomics. We also introduce
CD or go to a movie? These deci- the major topics within macroeco-
sions involve making a choice nomics and the use of models
from among a limited to study the macroeconomy.
number of alternatives— Finally, we present the produc-
limited because no one tion possibilities curve model
can have everything that and use it to understand basic
he or she wants. Every economic activity, includ-
question in economics at ing trade between two
its most basic level in- econ o mies. Because the
volves individuals mak- study of economics
ing choices. ? relies on graphical
But to understand models, an appen-
how an economy dix on the use
works, you need to of graphs fol-
understand more lows the end of
than how individ- this section.
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