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Simon Fraser University
ECON 103
Vera Lantinova

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: - Scarcity - Three parts of scarcity problem - Trade-off - Incentive - 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 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 choices about - 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 desired. 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. Resources are: - Land Includes all type of natural resources available. -Capital Refers to goods or tool that are available to produce other goods and services. 2 - Labor Is the human input into production process. - Entrepreneurship 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. MC
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