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
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
Entrepreneurship: The human resource that organizes labour, land and capital
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)