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ch 01 what is economics.docx

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University of Waterloo
ECON 102
Eva Lau

01 – what iseconomics? Chapter 1: What Is Economics? Definitionof Economics  we want more than we can get  scarcity: inability to satisfy all our wants  we must choose among available alternatives  incentive: a reward that encourages an action or a penalty that discourages one  economics: the study of 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  macroeconomics: the study of the performance of the national economy and the global economy TwoBig EconomicQuestions  how do choices end up determine what, how, and for whom goods and services are produced?  how can choices made in the pursuit of self-itnerest also promote the social interest? What, Howand For Whom?  goods and services: are the objects that people value and produce to satisfy human wants  goods are physical objects  services are tasks performed for people What:  who decides what to produce?  how do choices end up determining the number of goods to produce? How:  factors of production: product resources used to produce goods and services  land – natural resources  labour – work time and effort that people devote to produce goods and services  the quality of labour depends on human capital (knowledge and skill)  capital – tools, instruments, machines, buildings, etc  entrepreneurship – the human resource that organizes labour, land and capital For Whom?:  who consumes the goods and services?  a large income allows someone to buy more goods and services  people earn income by selling the services of the factors of production that they own  land - rent  labour – wages  capital – interest  entrepreneurship - profit HowCan the Pursuit of Self-interest Promote theSocialInterest? Self-Interest:  the best choice available to an individual  use your time and resources to benefit you, instead of thinking of others  ex – order delivery for pizza because you’re hungry, not because the delivery person needs income  when acting on self-interest, one often comes in contact with many of other people who produce and deliver goods and services page 1 of 4 01 – what iseconomics? page 2 of 4 01 – what iseconomics? Social Interest:  self-interest choices promote social interest if they lead to an outcome that is best for the society  resources are used efficiently when goods and services are produced  at the lowest possible cost, and  in the quantities that give the greatest possible benefit The Economic Wayof Thinking Choice and Tradeoffs  have to make choices because of scarcity  tradeoff: giving up one thing to get something else  if we want more of one thing, we must give up something else to get i
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