Chapter 1: What Is Economics?
- economics questions/problems arise because we want more than we can get
- scarcity = the inability to satisfy our wants
- scarcity leads to choice, and we make choices depending on the incentives
- incentive = reward/penalty that encourages/discourages an action
= social science that studies the choices that individuals, businesses, governments and
societies make as they cope with scarcity, and the incentives that influence and reconcile
- divides into:
- microeconomics = study of individuals and businesses
- choices that they make
- how those choices interact in market
- the influence of government
- macroeconomics = study of performance of national and global economics
Two Big Economics Questions
1. How do choices affect what, how, and for whom goods and services are produced?
- goods and services = objects people value and produce to satisfy wants
- What: What is produced? How many of it?
- How: How to use factors of production?
Factors of production (FOP)
= resources used to produce goods and services
a. land = any natural resources (land, oil etc.)
b. labour = workers' time and effort
c. capital = knowledge and skill of workers (determine quality of labour)
d. entrepreneurship = people who organizes land, labour and capital (CEO, human
resources department etc.)
- For whom: who gets the goods and services? Depends on incomes.
- higher income, more good and services
- types of income:
a. land: rent
b. labour: wage
c. capital: interest
d. entrepreneurship: profit
2. When do choices made in the pursuit of self-interest also promote the social-interest? Can
- self-interest = best for an individual
- social interest = best for society as a whole
= when resources are used at the lowest possible price and in quantities that give the
= fairness (subjective)
- main topics:
= expansion of international trade, borrowing/lending, and investment
- good for consumers (lower prize), and for big companies (lower cost)
- bad for low-wage worker and companies in high-prize countries (can't compete)
- does it serve social interest? - the information-age economy
- the past 40 years has been a Information Revolution
- serve self-interest of consumers (products), of technological companies and their
- did it serve the social interest?
- global warming/climate change
= actions t