Chapter 1: What is Economics?
“All economic questions arise because we want more than we can get.”
Economics: the social science that studies the choices individuals, businesses,
governments, and societies make as they cope with scarcity and incentives which
influence and reconcile these choices
Scarcity: inability to satisfy our wants
Incentives: a reward that encourages an action or a penalty that discourages one
Goods and Services: objects people value and produce to satisfy wants. Goods are
tangible, services are intangible
Microeconomics: studies the choices that individuals and businesses make, the
way these choices interact in markets, and the influence of the government. Focuses
on the small details of an economy. Example: “Why are people buying more DVD’s
and less movie tickets”?
Macroeconomics: studies the performance of the national economy and the global
economy. Examines the big picture. Example: “Why did inflation start to increase in
Canada in 2008”?
2 major economic questions
1. How do choices end up determining what, how, and for whom goods
and services are produce?
What-what we produce changes over time; should we produce more or less?
Example: In the past 65 years the employment in the service industry grew by
55%, agriculture has fallen because technology made it easier, and less people
were needed to work and mange farms.
How- 4 factors of production that use productive resources
1) Land- the gift of nature
2) Labour- work time and effort people put into producing goods and
services. Human capital- the knowledge and skill people obtain from
education, on job training, and work experience.
3) Capital- doesn’t include financial capital, as it does not help to produce
goods and services.
4) Entrepreneurship- human resource that organizes land, labour, and
capital. Makes business decisions; but not what how and for whom.
For whom-who consumes what depends on the income they earn. The more people
earn, the more they can buy. People earn income through 4 ways.
1) Land earns rent
2) Labour earns wages
3) Capital earns interest
4) Entrepreneurship earns profit land,
-Distribution of income is unequal neurship
-Poorest 20%: earn 5% of total income 30%
-Richest 20%: earn 50% of total income
-Rich are earning money at a greater
rate than the poor 70% 2. When does the pursuit of self-interest promote social interest? Is it
Self-interest: when one makes a choice that benefits themselves; not always selfish
Social Interest: when a choice is made in the best interest of society; resources are
used efficiently and goods and services are distributed equally.
-Resources are used efficiently when goods and services are produced
1) At the lowest possible cost
2) In quantities that give the greatest benefit
Do we produce the right things in the right quantities?
Do we use our factors of production in the best way?
Do the goods an