ECON 1000 Lecture Notes - Lecture 1: Information Revolution, Global Warming, Carbon Footprint

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16 Feb 2016
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CHAPTER 1
Definition of Economics
All economic questions arise because we want more than we can get. Our inability to satisfy all our
wants is called scarcity. Because we face scarcity, we must make choices. The choices we make depend
on the incentives we face. An incentive is a reward that encourages an action or a penalty that
discourages an action.
Definition of Economics
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.
Microeconomics is the study of choices that individuals and businesses make, the way those choices interact in
markets, and the influence of governments.
Macroeconomics is the study of the performance of the national and global economies.
Two Big Economic Questions
Two big questions summarize the scope of economics:
How do choices end up determining what, how, and for whom goods and services get produced?
When do choices made in the pursuit of self-interest also promote the social interest?
Factors of production are grouped into four categories:
Land earns rent.
Labour earns wages.
Capital earns interest.
Entrepreneurship earns profit.
Social interest has two dimensions:
1. Efficiency
2. Equity
1. Efficiency is achieved 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.
2. Equity is fairness, but economists have a variety of views about what is fair.
Four topics that generate discussion and that illustrate tension between self-interest and social interest are
1. Globalization
2. The information-age economy
3. Global warming
4. Economic instability
Globalization
Globalization means the expansion of international trade, borrowing and lending, and investment.
Globalization is in the self-interest of consumers who buy low-cost imported goods and services and in
the self-interest of the multinational firms that produce in low-cost regions and sell in high-price
regions.
The Information-Age Economy
The technological change of the past forty years has been called the Information Revolution. The
information revolution has clearly served your self-interest: It has provided your cell phone, laptop,
loads of handy applications, and the Internet.
It has also served the self-interest of Bill Gates of Microsoft and Gordon Moore of Intel, both of whom
have seen their wealth soar.
Climate Change
Every day, when you make self-interested choices to use electricity and gasoline, you contribute to
carbon emissions. You leave your carbon footprint.
Economic Instability
Between 1993 and 2007, the Canadian and global economies expanded strongly. Incomes in Canada
increased by 30 percent and incomes in China tripled. But in August 2007, a period of financial stress
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