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Micro – CH1.docx

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Department
Economics
Course
Economics 1021A/B
Professor
Irene Trela
Semester
Fall

Description
Micro – CH1 What is Economics?  Scarcity – inability to satisfy wants with limited - Time, Resources  Incentive - reward that encourages an action or a penalty that discourages an action  Choices  Opportunity Cost  Limited Resources, Unlimited Wants  Economics - social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. Micro & Macro o Micro – the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. o Macro - study of the performance of the national and global economies. Two Big Economic Questions 1. How do choices end up determining what, how, and for whom goods and services get produced? o Goods and services are the objects that people value and produce to satisfy human wants. o What, How, and For Whom?  What?  In Canada, agriculture accounts for 2 percent of total production, manufactured goods for 20 percent, and services (retail and wholesale trade, health care, and education are the biggest ones) for 78 percent.  In China, agriculture accounts for 11 percent of total production, manufactured goods for 49 percent, and services for 40 percent.  How?  Factors of Production o Land o Labor o Capital  Human Capital – quality of labor force (knowledge)  Capital – Machines etc. o Entrepreneurship  For Whom?  Who consumes the goods and services that are produced depends on the incomes that people earn o Land earns rent o Labour earns wages o Capital earns Interest o Entrepreneurship earns profit 2. When do choices made in the pursuit of self-interest also promote the social interest (everyone else)?  Self Interest  Social Interest – Reasons for Gov’t intervention (may go against private interest) o Efficiency –when the available resources are used to produce goods and services:  At the lowest possible price and in quantities that give the greatest possible benefit. o Equity – what is best for society (fairness) social programs  Can choices made in self-interest promote the social interest? o Globalization - the expansion of international trade, borrowing and lending, and investment. Is globalization in the social interest? o The information-age economy - change of the past forty years has been called the Information Revolution. But did the information revolution serve the social interest? o Global warming - Every day, when you make self-interested choices to use electricity and gasoline, you contribute to carbon emissions. But can each one of us be relied upon to make de
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