ABSTRACT
This chapter presents a number of basic concepts that are useful when we want to describe how an economy works, and to think about how we might make it work better, as citizens, and through government action. We start by describing three major ways to investigate and understand economic realities: empirical, theoretical, and historical. We then discuss how to approach tradeoffs (when we have to choose among different things that we might want). This is followed by an examination of two models that take different approaches to understanding the economy. The final section presents more in-depth analysis of the different kinds of economic activity, discussing the economic roles played by households and communities, businesses, government, and nonprofit organizations. The concepts and methods discussed in this chapter reappear throughout the book and will assist in a better understanding of modern macroeconomic issues.
