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ECON 101 (211)
Chapter 1

ECON 101 Chapter 1 Notes.odt

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ECON 101
Sharmistha Nag

• Scarcity: Our inability to get everything we want. (It is universal.) • What we can get is limited by the productive resources available. • Because we cannot get everything we want, we must make choices. • For example, time constraints prohibit you from both partying and studying, so you must make a decision. • Your choices must be made consistent with others, if you choose to buy a laptop, someone else must chose to sell it. • Incentives reconcile choices: it is either a reward for doing an action, or penalty prohibiting one. • Price is an incentive (ask to clarify this). • Economics: 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. • Divided into two parts: macroeconomics, microeconomics. • Microeconomics is the study of choices from individuals and businesses, the way these choices interact in the market, and the influence of government. • Macroeconomics deals with the performance of the global/nation economy. • Two big questions: How do choices influence what, how, and for whom, good and services are produced? Can the choices that people make out of self interest promote promote social interest. • Goods and services are those things which people value and use to satisfy wants. • Agood is a physical object, a service is a task. • In Canada, services>manufactured goods>agriculture • Goods and services are produced by productive resources called factors of production. • They are: Land, Labor, Capital, Entrepreneurship • Land: “Gift of Nature,” it includes all natural resources. • Labor: The time and effort of people, including both physical and mental efforts. • Quality of labor depends on human capital: expertise people gain from education and training. • For example, I am increasing my own human capital by studying economics. • Capital:All other resources used to make goods and services, includes tools, machines, buildings. • Although financial capital is used to buy physical capital, it does not directly produce goods and services and is thus not a productive resource. • Entrepreneurship: The human resource that organizes the other factors of production. Entrepreneurs are the individuals who run the business and make business decisions. • Who consumes the goods depends on individual's incomes • People earn income by selling the services of their factors of production: land earns rent, labor earns wages, capital earns interest, and entrepreneurship earns profit. • Labor earns the most income (70%) • The top 20 poorest earn 5% of income, top 20 poorest earn 50% of the income. • Achoice is in self interest if it is the best a
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