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Chapter 1

Economics 1021 Chapter 1 Notes

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Department
Economics
Course
Economics 1021A/B
Professor
Jeannie Gillmore
Semester
Fall

Description
Chapter 1 Definition of Economics  All economic questions arise because we want more than we can get.  Individuals „wants‟ are limited by time, incomes earned, and prices that must be paid.  Government‟s „wants‟ are limited by taxes they collect.  Society‟s „wants‟ are limited by resources including human labour, gift of nature, ingenuity, and equipment  Scarcity: Our (rich and poor alike) inability to satisfy all our wants / needs  Incentive: A reward that encourages an action or a penalty that discourages one  Economics: 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 these choices. o Microeconomics: The study of choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments. o Macroeconomics: The study of the performance of the national / global economy. Big Questions of Economics  How do choices end up determining what, how and for whom goods and services are produced? o Goods & Services: Physical items or services performed that are valued and are produced to satisfy „wants‟ o What? What we produce change over time.  65 years ago, 20% worked on farms, 60% worked in mining, construction and manufacturing, and 20% worked on service. Today, 75% + people have service jobs; while 25% work on making products. o How? Goods and services are produced are produced using the four factors of production  Land: „gift of nature‟ or „natural resources‟ that we use to produce goods and services  Includes land, water, air, forests, fish, oil, gas coal  Earns „rent‟  Labour: The time and effort (physical & mental) workers devote to producing goods and services  Human capital: Knowledge and skill that people obtain from education, training, and work experience that decides the quality of labour (expanding over time!)  Earns „wages‟ (70% of total income)  Capital: The tools, instruments, machines, buildings, and other constructions that are used  Financial capital: Specifically money, bonds, and stock that are not productive resources  Earns „interest‟  Entrepreneurship: The human resource that organizes labour, land and capital  Earns „profit‟ o For Whom? Who gets the goods depend on the incomes that people earn  How can the pursuit of self-interest also promote the social interest? o People make economic choices for „what‟, „how‟, and „for whom' goods and services are produced o Self-Interest: Choices that is the best one available to you regarding time and other resources you own. o Social Interest: Certain self-interested choices that lead to outcomes that are best for society as a whole; ones that use resources efficiently and distribute goods and services fairly  Efficiency: Achieved when the available resources are used to produce goods and services at the lowest possible costs and in the quantities that give the greatest possible benefit.  Do we produce the right things in the right quantity?  Do we use our factors of production in the best way?  Do the goods and services go to those who most benefit from them?  Is it possible to make choices in our self-interest, but also turn out to be for the social interest? o In today‟s world, there is often tension between self-interest and social interest on issues including  Globalization: Expansion of international trade, borrowing and lending, and investing  Information-Age Economy: Great technological changes in technology of 1990s and 2000s  Climate Change: Global warming and its climate changing effects are huge (esp. in politics)
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