We have seen that economics deals with the problems of scarcity and choice that have faced societies and nations throughout history, but the development of modern economics began in the 17th century. Since that time economists have developed methods for studying and explaining how individuals, businesses and nations use their available economic resources. Large corporations use economists to study the ways they do business and to suggest methods for making more efficient use of their employees, equipment, factories, and other resources. The United States government also employs economists to study economic problems and to suggest ways to solve them.
You will discover that economists deal with two worlds: the "world that is," and the "world that ought to be." Economists have developed and generally agree on basic economic principles and models that try to explain or describe the "world that is." An economic model is any simplified statement, diagram, or formula used to understand economic events. For example, economists can use basic principles like the laws of supply and demand and simple economic models to predict that the price of coffee in the United States will go up after a freeze destroys much of the Brazilian coffee crop. All economists would agree that the freeze would result in a price increase, but predicting the size of the increase would depend on the quality of the economists model. As you travel through this semester of Applied Economics, you will learn to use several economic models which will help you understand and analyze economic events.
In many cases, however, economic issues cannot be solved with theories and models alone. Solutions to these problems involve opinion, polities, and personal values. For example, what ought to be done about the high rate of teenage unemployment? Economists will agree that unemployment is bad. As a solution to that problem, one economist might propose that government create jobs for teenagers. Another will oppose this step, suggesting instead that the problem of teenage unemployment would be solved if employers were allowed to pay teenagers lower wages than they must pay adult workers.