What is Economics?
Definition of Economics
• All economic questions arise because we want more than we can get.
• Scarcityis our inability to satisfy all our wants.
• Faced with scarcity we must make choices.
• Economicsis 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.
• Economics divides into Microeconomics and Macroe conomics.
• Microeconomicsis the study of the choices that individuals and businesses make, the way these
choices interact in markets, and the influence of governments.
• Macroeconomics is the study of the performance of the national economy and the global
Two Big Economic Questions
• The two big questions of economics are:
1. How do choices end up determining what, how, and for whom goods and services are
2. When do choices made in the pursuit of self-interest also promote the social interest?
• The objects that people value and produce to satisfy human wants are called goods and
• Study figure 1.1 on p. 3 of your textbook to determine if Canada is a service economy or a goods
• Factors of production are the resources that businesses use to produce goods and services.
• Factors of production are grouped into four categories: land, labour, capital, and
1. The “gifts of nature” that we use to produce goods and services are called land.
2. The work time and work effort that people devote to producing goods and services is
called labour. The quality of labour depends on human capital, which is the knowledge
and skill that people obtain from education, on-the-job training, and work experience.
3. The tools, instruments, machines, buildings, and other constructions that businesses
now use to p