Economists disentangle cause and effect by using natural experiments (situations in the ordinary
course of economic life in which the one factor of interest is different and other things are equal or
similar); conducting statistical investigations to find correlations; and performing economic
experiments by putting people in decision-making situations and varying the influence of one factor
at a time to discover how they respond.
4. How is economics used as a policy tool?
Individuals, businesses, and governments use economics as a policy tool. Individuals use the
economic ideas of marginal benefit and marginal cost when making decisions for such topics as
attending university, paying cash or credit for a purchase, and working. Businesses also use the
concepts of marginal benefit and marginal cost when making decisions about what to produce, how
to produce, and how many hours to stay open. Governments use marginal benefit and marginal
cost when deciding issues such as the level of property taxes, the amount to fund higher education,
or the level of a tariff on EU imports.
4 CH AP TER 1
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Page 13
1. What types of jobs do economists do?
Economists do jobs that require the collection and analysis of data on the production and use of
resources. They work at jobs that require the ability to predict future trends. Economists are also in
jobs that study to determine ways of using resources more efficiently.
Three common jobs that hire economists are market research analyst, financial analyst, and budget
analyst.
A market research analyst works with data on buying patterns to forecast the likely success of a
product and the price consumers are willing to pay for it.
A financial analyst studies trends and fluctuations in interest rates and stock and bond prices and
tries to predict the cost of borrowing and the returns on investments.
A budget analyst keeps track of an organization’s cash flow and prepares budget plans that
incorporate predictions of future cash flows.
2. What is the range and median level of economists’ pay?
The Web resource payscale.com reports a pay range for economists of all types from $44,441 to
$127,500, with a median of $85,970.
3. What are the skills needed for an economics job?
The five most important skill requirements for an economics job are critical-thinking skills, analytical
skills, math skills, writing skills, and oral communication skills.
Critical-thinking skills are the ability to clarify and solve problems using logic and relevant evidence.
Analytical skills are the use of economic ideas and tools to examine data, notice patterns, and reach
a logical conclusion.
Math skills are the ability to use mathematical and statistical tools to analyze data and reach valid
conclusions.
Writing skills are the ability to present ideas, conclusions, and reasons in succinct written reports
appropriate for the target audience.
Oral communication skills are the ability to explain ideas, conclusions, and reasons to people with a
limited background in economics.
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WH AT IS ECO NO MICS? 5
Answers to the Study Plan Problems and Applications
1. Apple Inc. decides to make iTunes freely available in unlimited quantities.
a. Does Apple’s decision change the incentives that people face?
Apple’s decision changes people’s incentives. For example, it increases the incentive to buy
an iPhone to take advantage of the newly “free” music available on iTunes.
b. Is Apple’s decision an example of a microeconomic or a macroeconomic issue?
Apple’s decision is a microeconomic issue because it affects a single company and a single
market.
2. Which of the following pairs does not match?
a. Labour and wages
Labour earns wages, so this pair matches.
b. Land and rent
Land earns rent, so this pair matches.
c. Entrepreneurship and profit
Entrepreneurship earns profit, so this pair matches.
d. Capital and profit
Capital earns interest, so this pair does not match.
3. Explain how the following news headlines concern self-interest and the social
interest.
a. Starbucks Expands in China
Starbucks’ expansion is a decision made by Starbucks to further Starbucks’ interest. The
decision is directly in Starbucks’ self-interest. The social interest is affected because
Starbucks’ expansion will have an effect in China. For example, more Chinese might drink
coffee rather than tea and fewer Chinese entrepreneurs will open new coffee shops.
b. McDonald’s Moves into Online Ordering
McDonald’s decision to move into online ordering is a decision made by McDonald’s to further