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Chapter 1

ECON 101 - chapter #1 notes.doc

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ECON 101
Corey Van De Waal

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ECON 101 – Chapter #1 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. The subject is divided into two parts: Microeconomics and Macroeconomics. Microeconomics - is the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influences of governments. Some examples are: Why are people buying more DVS’s and fewer movie tickets? OR How would a tax on ecommerce affect eBay? Two Big Questions in Economics - How do choices end up determining what, how, and for whom goods and services are produced? - How can choices made in pursuit of self interest also promote the social interest? Goods and services are the objects that people value and produce to satisfy human wants. What? What we produce changes over time. 65 years ago 20% of Canadians were in the agricultural and farming sector. Today 70% of Canadians are in the service sector. How? Goods and Services are produced by using the factors of production. 1. Land  earns rent – The gifts of nature, what we use to produce goods and services are called land. Basically natural resources. 2. Labour  earns wages – The work-time and work-effort that people devote to producing goods and services is called labour. Includes physical and mental effort. Labour entails the Human capital. This is the knowledge, skills, and on the job experience that people obtain from education and work. Human capital expands. 3. Capital  earns interest – The tools, machines, and buildings that business use to produce goods and services. In everyday we talk about money stocks, and bonds. There are called Financial Capital. 4. Entrepreneurship earns profit – human resources that puts: land, labour, and capital into use to earn profit. Come up with new ideas on what and how to produce, they make business decisions and bear the risks that come with these decisions For Whom? Who consumes the goods and services produced depends largely on the size of the individuals income. A large income obviously allows a person to buy large quantities of goods and services. Note: The factor that earns the most income is Labour. Wages and fringe are about 70% of total income. - Distribution of income among individuals is extremely unequal. Example – Mike Lazardis compared to servers at Tim Horton’s. The poorest 20% of the population earn 5% of the total wealth and the richest 20% earn 50% of the total wealth. How can the pursuit of self-interest promote the social interest? Self-Interest: A choice is in your self-interest if you think that the choice is the best available to you. Most choices are made in your own self-interest. We don’t think too much how our choices affect other people. Economists go on the assumption that human beings are selfish and act completely and exclusively out of self-interest. Social Interest: Self-interested 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 them equitably among people. Resources are being used efficiently when goods and services are produced: 1. At the lowest possible cost. 2. In the quantities that will give the greatest possible benefit. How can we organize our economic lives so that when each one of us makes choices that are in our own self-inter
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