Define economics. Explain briefly how the economic way of thinking—in terms of rational, self-interested people responding to incentives—relates to each of the following situations.
a. A student deciding whether to purchase a textbook for a particular class
b. Government officials seeking more funding for mass transit through higher taxes
c. A municipality taxing hotel guests to obtain funding for a new sports stadium
Economics is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behavior and interactions of economic agents and how economies work. There are three main types of economies: free market, command, and mixed. The chart below compares free-market and command economies; mixed economies are a combination of the two. Individuals and businesses make their own economic decisions.