Resources are scarce. Scarcity means that society has limited resources and
therefore cannot produce all the goods and services people wish to have.
Economics is the study of how society allocates its scarce resources to satisfy the
peoples’ unlimited wants.
An incentive is a reward that encourages a action or a penalty that discourages an
A resource is anything that can be used to produce something else.
Two big economic questions;
-How do choices end up determining what, how, and for whom goods and services
-when do choices made in the pursuit of self-interest also promote the social-
What, how and For Whom?
-What : Goods and services are the objects that people value and produce to satisfy
-How : Goods and services are produced by using productive resources that
economists call factors of production.
Four categories of factors;
-The “gifts of nature” that we use to produce goods and services are land.
-The work time and work effort that people devote to producing goods and services
-The quality of labour depends on human capital, which is the knowledge and skill
that people obtain from education, on-the-job training, and work experience.
-the tools, instruments, machines, buildings, and other constructions that businesses
use to produce goods and services are capital.
-The human resource that organizes land, labour, and capital is entrepreneurship.
-Who gets the goods and services depends on the incomes that people earn.
-Land earns rents
-Labour earns wages
-capital earns interest
-Entrepreneurship earns profit When is the pursuit of self-interest in the social-interest?
-You make choices that are in your self-interest, coices that you think are best for
-Choices that are best for the society as a whole are said to be in the social-interest.
-An outcome is in the social-interest if it uses resources efficiently and distributes
goods and services fairly.
Q: is it possible that when each one of us makes choices that are in our self-interest,
it also turns out that these choices are also in the social interest?
A: most of the times, economic agents acting purely out of their own elf-interest also
promote social interest through what Adam Smith calls as the “invisible hand”.
Five topics that illustrate tension between self and social interest include;
-the information-age economy
-natural resource depletion
Every choice involves a tradeoff, an exchange, giving up one thing to get something