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Chapter 1

Economics 1021A Chapter 1


Department
Economics
Course Code
ECON 1021A/B
Professor
Terry Biggs
Chapter
1

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Economics 1021A Chapter 1 2013-09-22
Scarcity – our inability to satisfy all of our wants
Choices must be made because of scarcity
We make choices that give us incentive
Economics is 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.
Microeconomics is the study of choices that individuals and businesses make, the way those choices
interact in markets, and the influence of governments.
Why are people buying more e-books and fewer hard copy books?
Macroeconomics is the study of the performance of the national and global economies.
Why is the unemployment rate in Canada so high?
Two big questions summarize the scope of economics
How do choices end up determining what, how, and for whom goods and services get produced?
When do choices made in the pursuit of self-interest also promote the social interest?
How do choices end up determining what, how, and for whom goods and services get produced?
What - Goods and services are the objects that people value and produce to satisfy human wants.
How - Goods and services are produced by using productive resources that economists call factors of
production:
Land - The “gifts of nature” that we use to produce goods and services
Labour - The work time and work effort that people devote to producing goods and services
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.

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Capital - The tools, instruments, machines, buildings, and other constructions that businesses use to
produce goods and services
Entrepreneurship - The human resource that organizes land, labour, and capital
For Whom - Who gets the goods and services depends on the incomes that people earn
Land earns rent
Labour earns wages
Capital earns interest
Entrepreneurship earns profit
When do choices made in the pursuit of self-interest also promote the social interest?
Self interest - You make choices that are in your self-interest—choices that you think are best for you.
Social interest - Choices that are best for society as a whole; there are two dimensions:
Efficiency - achieved when the available resources are used to produce goods and services:
At the lowest price
In quantities that give the greatest benefit
Equity – fairness through taxation and redistribution
Four topics that generate discussion and that illustrate tension between self-interest and social interest are:
Globalization - means the expansion of international trade, borrowing and lending, and investment.
Globalization is in the self-interest of consumers who buy low-cost imported goods and services and in of
the multinational firms that produce in low-cost regions and sell in high-price regions.
Globalization is not in the self-interest of low-wage workers in other countries and Canadian firms that can’t
compete with low-cost imports
The information-age economy - The technological change of the past forty years has been called
the Information Revolution
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