Thursday, September 16, 2010
• All economic questions arise because we want more than we can have
• Change in technology, environment, and global economy. Positive: information age.
• Our inability to satisfy all our wants is called: scarcity p. 2
• Because we face scarcity, we must make choices
• The choices we make depend on the incentives we face.
• An incentive is a reward that encourages an action or a penalty that discourages an action
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: (choices individuals and businesses make, the way choices
interact with markets, and the influence of the government) p. 2
MACROECONOMICS: (performance of the national and global economy) p. 2
-‐ China, Indian, Brazil, and Russia playing a greater role in expanding global economy
-‐ Scarcity & incentives are a huge part in economics
Two Major Economic Questions:
1) How do choices end up determining what, how, and for whom good and services are
2) How can choices made in the pursuit of self-interest also promote the social interest?
What, How, and For Whom?
WHAT: Goods and services
-decrease in farming and manufacturing caused by the increase in services
HOW: Factors of production> production of goods and services with the usage of productive
-‐ Land – natural resources (minerals, oils, gas, water, air etc..)
-‐ Labour – work and time people devote to producing goods and services
*quality of labour depends on human capital – knowledge from education, work
experience, job-training people obtain
-‐ Capital – (investment) tools, instruments, machines, buildings that businesses use to
produce goods and services
*Physical capital – tools, machines, buildings etc.
*Financial capital – stocks, bonds
-‐ Entrepreneurship – human resources that organize labour, land and capital
Entrepreneurs come up with new ideas about what and how to produces, and make business
FOR WHOM: who consumes goods and services depends on the income those people earn.
Those with a larger income allow a person to buy large quantity of goods and services. A small
income gives a person few options and a smaller quantity of goods and services.
-‐ Land > rent
-‐ Labour > wages (earns the most income)
-‐ Capital > interest
-‐ Entrepreneurship > profit
How Can the Pursuit of Self-Interest Promote the Social Interest?
SELF-INTEREST: choice that is best for you
-acting on economic self-interest, you are connecting with the people who produce those goods
and services you buy.
SOCIAL INTEREST: self-interest promotes social interest if it leads to an outcome that is best
for society as a whole. *the outcome uses resources efficiently and distributes the goods and
Resources are used efficiently when goods and services are produced
1) At the lowest cost
2) In the quantities that give the greatest possible bene