Economics 1021A/B Lecture Notes - Lecture 1: Human Capital, Opportunity Cost, Marginal Cost

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Chapter 1
What is Economics?
Definition of Economics
All economic questions arise because we want more than we can get.
Scarcity is our inability to satisfy all our wants.
Faced with scarcity we must make choices.
Economics is the 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.
Economics divides into Microeconomics and Macroeconomics.
Microeconomics is the study of the choices that individuals and businesses make, the way these
choices interact in markets, and the influence of governments.
Macroeconomics is the study of the performance of the national economy and the global economy.
Two Big Economic Questions
The two big questions of economics are:
1. How do choices end up determining what, how, and for whom goods and services are produced?
2. When do choices made in the pursuit of self-interest also promote the social interest?
The objects that people value and produce to satisfy human wants are called goods and services.
Study figure 1.1 on p. 3 of your textbook to determine if Canada is a service economy or a goods
economy.
Factors of production are the resources that businesses use to produce goods and services.
Factors of production are grouped into four categories: land, labour, capital, and entrepreneurship.
1. The “gifts of nature” that we use to produce goods and services are called land.
2. The work time and work effort that people devote to producing goods and services is called labour.
The quality of labour depends on human capital, which is the knowledge and skill that people
obtain from education, on-the-job training, and work experience.
3. The tools, instruments, machines, buildings, and other constructions that businesses now use to
produce goods and services are called capital.
4. The human resource that organizes labour, land, and capital is called entrepreneurship.
To earn an income, people sell the services of the factors of production they own.
1. Land earns rent.
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