All Economic problems arise from scarcity—the inability to satisfy unlimited wants with
o Scarcity is universal
o Have to make choices because of scarcity—these choices are influenced by incentives
(gain or pleasure that encourages or penalty that discourages an action)
Although there is no one definition of Economics, Parkin and Bade defines it as “a Social
Science that studies the choices made by individuals, businesses, governments, and entire
societies in order to cope with scarcity and how incentives encourage or reconcile these
Microeconomics studies the choices made by individuals and businesses and how these
choices interact in a market and influence governments
Macroeconomics studies the performance of global and national Economics
Parkin and Bade’s two Economical questions:
o How do choices determine what, how, and for whom goods and services are produced,
and in what quantities?
o When are choices made in self-interest in line with social interest?
What?—what goods and services are produced (G/S = any object people value and is
produced to satisfy wants)
How?—what is used to produce
o Factors of production:
Land: natural resources
Labour: work time and effort put in by humans for the production of goods and
services. Quality of labour depends on human capital (skills and knowledge of
workforce gained through education, training, or work experience)
Capital: tools, equipment, buildings, and other infrastructure used in production.
Different from financial capital (money, stocks, bonds) that businesses need.
Entrepreneurship: human resource that combines the three other factors of
production, and bears all the risks in business
For whom?—depends on income of different people.
o Income may come from: LandRent; Labour Wages (the factor of production that
earns the most income); CapitalInterest (think of it as selling capital by deferred
payments with interest); Entrepreneurship profit
What individuals choose to produce determines what societies as a whole produces
Question: can pursuit of self-interest (choices that are best for self) fall in line with social
interest (choices that are best for society)? What is best for society?
o Many dimensions, but Parkin and Bade only considers two—efficiency (avoiding
waste), and equity (fairness)—as being promoting social interest o Individual interests and social interest do not always fall in line, even regarding the
same issues—no definite “yes”/”no” answer to question
In Economics, we assume people make rational choices (choice made by comparing costs
and benefits, and one that achieves the