ds and services will be produced. Thirdly, it resolves the question of distribution. Markets for goods and services, and markets for production of those goods and services command mechanisms directly correlate with the choices made by households, firms and governments. The US economy relies mainly on markets but to a degree on command mechanisms. The US economy is an open economy and has become highly integrated with the global economy. This is a fairly recent development, with foreign investment into US business outstripping US investments in foreign enterprises shifting the balance in the mid-1980s. Economists study these financial movements in order to determine the underlying principles driving the economy. This approach utilizes the same rigor and objectivity of natural scientists. Economic science, like natural science, is an attempt to discover a body of laws. All sciences use the same criteria in the investigative process: careful and systematic observation and measurement, and the development of a body of theory to direct and interpret observations. That theory is a general rule or principle that allows economists to understand and predict the economic choices that people make. Theories are derived from building and testing economic models. Economic models are built on four key premises. These basic assumptions are: People have preferences People have a fixed amount of resources and a technology that can transform resources into goods and services. People choose how to use resources and technology to increase economic well-being. Peoples choices are coordinated buyers choose what sellers offer and vice versa. The implications of such models are that the values of various prices and quantities result in equilibrium. That is, situations in which everyone has made the best possible choices, given their own preferences, information, resources, and technologies, and that ...
