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ECON 1000 exam notes.docx

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York University
ECON 1000

ECON1000Ch1DefinitionofEconomicsEconomics the social science that studies the choice individuals businesses governments and entire societies make as they cope with scarcity and he incentives that influence and reconcile those choicesScarcity inability to satisfy all wantsneeds because of limited resourceIncentive a reward that encourages an action or a penalty that discourages an actionMicroeconomicsthe study of the choices that individuals and businesses make the way these choices interact in markets and influence the governmentMacroeconomics the study of the performance of the national economy and the global economyoMicroeconomics vs Macroeconomics no money involved in microeconomicsTwo big economics questionsoHow do choices end up determining what how and for whom goods and services get producedoWhen do choices made in the pursuit of selfinterest also promote the social interestFactors of productionoLand earns rentNatural resources minerals oil gas coal water air forests fish etcsome renewable can be recycled some nonrenewable resources to make energyoLabour earns wageswork time and effort that people devote to production goods and services physical and mental effortsquality depends on human capital knowledge and skill that people obtain from education training and experience oCapital earns interest1tools instruments machines buildings used to produce goods and servicesfinancial capital used to buy physical capital but is not a productive resource as it is not used to produce goods and servicesoEntrepreneurship earns profithuman resources that organize labour land and capitalSelfinterest if the choice is the best available for an individual Using time and resources in ways that make sense to an individual Dont think how choices affect societySocial interest selfinterested choices promote social interest if they lead to an outcome that is the best for society as a whole An outcome that uses resources efficiently and distributes goods and services equitably among individualsoused efficiently when goods and services producedat lowest possible costin quantities that give the greatest possible benefitinteraction of selfinterest and social interestoGlobalizationexpansion of international trade borrowing lendingad investmentoThe informationage economytechnological change of the 1990s and 2000soGlobal warmingclimate change and political issues associatedoNatural resource depletionOverfishing in international waters clearcutting rainforests etcoEconomic instabilityChoices leading up to recession etctradeoff an exchange giving up one thing to get something else2as a society tradeoff current consumption and leisure time for economic growth and higher future consumptionsaving education research and developmentoWhat spending income on various things what to produceoHow choosing among alternative production technologiesoWhom distribution of buying powervoluntary payment theft taxes and benefitsbig tradeoff between equality and efficiencyopportunity cost the highest valued alternative forgoneoTheres no such thing as a free lunchmargin the consequences of making incremental changes in the use of resourcesomarginal benefit the benefit that arises from an increase in an activitydecreasing functionomarginal cost the cost of an increase in an activityincreasing functionoIf marginal benefit exceeds marginal cost incentive to do more of that activityoIf marginal cost exceeds marginal benefit incentive to do less of that activityoIncentives are the key to reconciling selfinterest and the social interestEconomists emphasize the role of institutions in creating incentives to behave in the social interestoParamount the rule of law that protects private property and facilitates voluntary exchange in marketsPositive statements what isNormative statements what ought to beeconomic model description of some aspect of the economic worldunscrambles cause and effectonatural experiment situation that arises in the ordinary course of economic life factors of interest is different other things are similar3
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