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Chapter 1: Preliminaries
PART I
INTRODUCTION:
MARKETS AND PRICES
CHAPTER 1
PRELIMINARIES
TEACHING NOTES
Chapter 1 covers basic concepts students first saw in their introductory course but could bear
some repeating. Since most students will not have read this chapter before the first class, it is a good
time to get them talking about some of the concepts presented. You might start by asking for a
definition of economics. Make sure to emphasize scarcity and trade-offs. Remind students that the
objective of economics is to explain observed phenomena and predict behavior of consumers and firms
as economic conditions change. Ask about the differences (and similarities) between microeconomics
and macroeconomics and the difference between positive and normative analysis. Review the concept of
a market and the role prices play in allocating resources. Discussions of economic theories and models
may be a bit abstract at this point in the course, but you can lay the groundwork for a deeper
discussion that might take place when you cover consumer behavior in Chapter 3.
Section 1.3 considers real and nominal prices. Given the reliance on dollar prices in the
economy, students must understand the difference between real and nominal prices and how to
compute real prices. Most students know about the Consumer Price Index, so you might also mention
other price indexes such as the Producer Price Index and the Personal Consumption Expenditures
(PCE) Pric
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