Economics: Foundations and Models Brief Chapter Summary and Learning Objectives 1.1 Three Key Economic Ideas (pages 4–8) Explain these three key economic ideas: People are rational, people respond to incentives, and optimal decisions are made at the margin. ƒ People must make choices as they try to attain their goals. People make choices because resources are scarce. Most of economics analyzes what happens in markets. 1.2 The Economic Problem That Every Society Must Solve (pages 8–12) Discuss how an economy answers these questions: What goods and services will be produced? How will the goods and services be produced? Who will receive the goods and services produced? ƒ A limited amount of resources can produce a limited amount of goods and services. ƒ The cost of producing more of one good is the value of what must be given up to produce it. 1.3 Economic Models (pages 12–16) Understand the role of models in economic analysis. ƒ Economists use models—simplified versions of reality—to analyze real-world issues. ƒ Economists accept a model if it leads to hypotheses that are confirmed by statistical analysis. 1.4 Microeconomics and Macroeconomics (pages 16–17) Distinguish between microeconomics and macroeconomics. 1.5 A Preview of Important Economic