Fraser International College
ECON1034 “Principles of Microeconomics”
Chapter 1: What is Economics?
Economics is a social science in which we study how to solve the problem of scarcity and to
answer the questions of what whom and how to produce.
The KEY concepts in this chapter:
- Three parts of scarcity problem
- Opportunity cost
- Marginal cost, marginal benefit
- Types of resources
- Efficiency in production
Economics studies the choices that individuals and societies make as a result of scarcity and
the incentives that affect these choices.
Economics is divided into 2 fields:
- Microeconomics: based on individual choices .
- Macroeconomics :Based on whole or collective choices.
An incentive is a motive to do or not to do something.
Positive incentive (Rewards) encourage to do something
Negative Incentive (Penalties) discourage to do something.
1 Scarcity is
It is a situation which occurs due to limited resources available to fulfill wants. and to
produce unlimited amount of goods and services which are desired.
Scarcity occurs when there is excess of human wants over what actually is produced.
Resources are insufficient to fulfill demand.
The only thing people value is scarce and a scare good is a good that people run out of it if
it is given in free.
The consequence of scarcity is a necessity to make choices. As a society, we need to make
- What to produce
- How to produce
- For whom to produce
What to produce?
Make choices about
Refers to what type of goods and services to produce which have demand in the market and or
How to produce?
Make choices about what resources to use, in what quantities, efficiently or not.
Factor of production refer to resources available to produce goods and services.
Includes all type of natural resources available.
Refers to goods or tool that are available to produce other goods and services.
2 - Labor
Is the human input into production process.
IS the person who do investment and take the risk to start a business.
Resources are used efficiently if
- goods and services are produced at the lowest possible cost, and
- in the quantities that give the greatest possible benefit.