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Economics 2163A/B
Bruce Hammond

EconomicsChapter 1 What is economicsDefinition of EconomicsWe want more than we can getour inability to get everything we want is scarcityWhat you can afford to buy is limited by your income and by the prices you must payand also the fact that there are only 24 hours a dayWe want things that only the government can provide clean water security etcoWhat governments can afford is limited by the taxes they collectoAs they collect taxes our income is lowerWhat society can get is limited by the productive resources availableoProductive resources are gifts of nature human labour and ingenuity and previously produced tools and equipment Because we cant get everything we want we must make choicesoChoices can be reconciled by incentives a reward that encourages an action or a penalty that discourages oneoPrice acts as an incentiveif it is too high more will be offered than what people want to buy if it is too low vice versaThere is a price where choices to buysell are consistentEconomics 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 these choicesMicroeconomics The study of the choices that individuals and businesses makeMacroeconomics The study of the performance of the nationalglobal economyTwo Big Economic Questions1How do choices end up determining what how and for whom goods and services are produced2Can the choices that people make in the pursuit of their own selfinterest also promote the broader social interestHow do choices end up determining what how and for whom goods and services are producedWhat we produce varies across countries and changes over timeoSome nations are more agriculturally inclined whereas others may be technologically inclinedoAll depends on the target market and what is necessaryHow goods and services are produced can be demonstrated using productive resources that economists call factors of productionoLand gifts of naturenatural resources including oil gas minerals water etcoLabour The work time and work effort that people devote to producing goods and servicesThe quality of labour depends on human capital which is the knowledge and skill that people obtain from education onthejob training and experienceoCapital The tools instruments machines buildings and other constructions that businesses use to produce goodsMoney stocks and bonds are known as financial capitaloEntrepreneurship The human resources that organizes labour land and capitalEntrepreneurs come up with new ideas about what and how to produceWho consumes the goods and services that are produced depends on the incomes that people earnoPeople with large incomes can buy a wide range of produceoPeople with small incomes have fewer optionsoPeople earn income by selling their factors of productionLand earns rentLabour earns wagesCapital earns interestEntrepreneurship earns profitLabour earns the most income
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