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Chapter 1

Chapter 1 Summary

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University of Guelph
ECON 1050
Eveline Adomait

Economics Textbook Summaries September-01-13 1:53 PM Chapter 1 Scarcity is the inability to get everything we want. This means that people must make choices - called a tradeoff (giving up something to get something). An incentive is a reward that encourages an action, or a penalty that discourages one. Incentives reconcile choice. Prices act as incentives. Economics is 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. Microeconomics: The study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments. Two Big Economic Questions: How do choices end up determining what, how, and for whom goods and services are produced? When do choices made in the pursuit of self-interest also promote the social interest? 6 Key Ideas that define the economic way of thinking: 1. A choice is a tradeoff 2. People make rational choices by comparing benefits and costs 3. Benefit is what you gain from something 4. Cost is what you must give up to get something 5. Most choices are "how-much" choices made at the margin 6. Choices respond to incentives Goods and services are the objects that people value and produce to satisfy human wants. They are produced using productive resources called factors of production, which are grouped into 4 categories: 1. Land a. Natural resources (
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