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
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
o Goods and services are the objects that people value and produce to satisfy
o What, How, and For Whom?
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.
Factors of Production
Human Capital – quality of labor force (knowledge)
Capital – Machines etc.
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)?
Social Interest – Reasons for Gov’t intervention (may go against private interest) o Efficiency –when the available resources are used to produce goods and
At the lowest possible price and in quantities that give the greatest possible
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
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