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really helpful econ notes

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Economics 1021A/B
Michael Parkin

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Chapter 1  All Economic problems arise from scarcity—the inability to satisfy unlimited wants with limited resources. 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 choices.”  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: LandRent; Labour Wages (the factor of production that earns the most income); CapitalInterest (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
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