1 The Scope of Economic Analysis

Introduction

What Economics is all about?

Economic theory is strictly positive and economics really concerns is to explain or predict an individual's choice among options and the consequent observable real world phenomena.

In short, economics starts with the basic assumption, or postulate that an individual makes predictable and reasonable choice. First, it means an individual makes choice among options; and second, this choice is predictable and reasonable, so that his behaviour can be explained and predicted.

(現在所學的經濟學都是 positive economics.)

Scarcity and Constraints

Under scarcity, one is not able to get all the goods he wants. It implies that an individual has to make choice among alternative options. An individual makes choices under scarcity. It means that an individual is free, but is also restricted or constrained to make choice among the alternative options that are available. That is, an individual's choice is always made under constraints.

Postulate of Maximization

Economics sets forth to predict and explain human behaviour. It implicitly assumes that human behaviour is predictable, reasonable, and not accidental, otherwise, no predictions on human behaviour can be made. Thus, in making predictions on human behaviour, we have to establish some sets of principles that human behaviour, we have to establish some sets of principles that human behaviour will follow. Most basic one is the postulate of maximization. Obviously, it can also be extended to mean that an individual will always minimize all those deemed as unfavorable.