ECON 2106 Lecture 1: Test 1 Class Notes

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1 Sep 2015
Chapter 1: What is Economics?
1. Define economics and distinguish between microeconomics and macroeconomics
2. Explain the two big questions of economics
3. Explain the key ideas that define the economic way of thinking
4. Explain how economists go about their work as social scientists and policy
Scarcity- our inability to satisfy all our wants
1. All economic questions arise because we want more than we can get
a. Limited resources and time combined with virtually unlimited human
2. Economics is all about how to allocate the limited resources amongst society
3. Because we face scarcity, we must make choices
4. An incentive is a reward that encourages an action or a penalty that discourages
an action
Economics- 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 settle those choices
1. Microeconomics- the study of choices that individuals and businesses make, the
way those choices interact in markets, and the influence of governments
2. Macroeconomics- the study of the performance of the national economy and
global economies
Two Big Questions (summarize the scope of economics)
1. How do choices end up determining what, how and for whom goods and services
get produced?
2. Can the choices made in the pursuit of self-interest also promote the social
Goods and services- the objects that people value and produce to satisfy human wants
1. What people produce varies across countries and changes over time
1. Goods and services are produced by using productive resources that economics
call factors of production
a. Land (or natural resources): gifts of nature
b. Labor: work time and work effort that people devote to producing goods
and services
c. Capital: tools, instruments, machines, constructions that businesses use to
d. Entrepreneurship: human resource that manage the above factors to
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