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Lecture 1

Economics 1021A/B Lecture Notes - Lecture 1: Human Capital, Invisible Hand, Positive Statement

Course Code
ECON 1021A/B
Michael Parkin

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September 14, 2015
Chapter 1: What is Economics?
Definition of economics:
Economic questions arise because we want more than we can get.
Inability to satisfy all our wants is called scarcity
Because of scarcity, we must make choices
Choices we make depend on the incentives we face
Incentive is a reward that encourages an action or a penalty that discourages an action
One of the definitions: social science that studies the choices that individuals, businesses,
governments and entire societies make as they cope with scarcity and the incentives that
influence reconcile these choices
Microeconomics is the study of choices that individuals and businesses make, the way
those choices interact in markets and the influence of governments
Two big economic questions:
How do choices end up determining what, how and for whom goods and services get
When do choices made in the pursuit of self-interest also promote the social interest?
Question 1: What, how and for Whom?
oGoods and services
oGoods and services are produced by suing productive resources that economists
call factors productions
oGrouped into 4 categories
Labour – human capital
Capital – money
For whom
oWho gets the goods and services depend on income that people earn
oEntrepreneurship = profit
oLand earns rent
oCapital earns interest
oLabour earns wages
How do we decide what to produce and what to buy?
Make choices that are best for you
oSocial interest
Choices that are best for society as a whole are said to be in the social
Has 2 dimensions
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