Economics Chapter 1
What is economics?
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 reconcile those choices.
Scarcity: the inability to get everything we want
Microeconomics: study of the choices that individuals and businesses make, the way
these choices interact in markets, and the influence of governments.
Macroeconomics: the study of the performance of the national economy and the
Goods and services: the objects people value and produce to satisfy human wants
- goods are physical objects
- services are tasks performed for people
Factors of production: productive resources used to produce goods and services,
such as land, labour, capital, entrepreneurship.
Land- natural resources
Labour- work time ad work effort that eople devote to producing goods and
services. It includes the physical and mental efforts of all the people who work on
farms, construction sites, factories, shops, offices.
Quality of labour depends on human capital: the knowledge and skill that people
obtain from education, on-the-job training, and work experience.
Capital: the tools, instruments, machines, buildings, and other construction that
businesses use to produce goods and services.
Financial Capital: money, stocks and bonds
Entrepreneurship: human resource that organizes labour, land, and capital. They
come up with new ideas about what and how to produce, make business decisions,
and bear risks that arise from these decisions.
Land earns rent
Labour earns wages
Capital earns interest
Entrepreneurship earns profit
Self-interest: a choice is in your self-interest if you think that choice is the best one
available for you
Social interest: a choice is in the social interest if it leads to an outcome that is the
best for society as a whole Efficiency- achieved when the availa