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Chapter 1

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Western University
Economics 1021A/B
Jeannie Gillmore

Chapter 1 Notes Economics  the inability to get everything we want is called scarcity, a universal concept o what one can afford to buy is limited by income and the prices that one must pay for goods/services o in general, everything that one party wants is limited by some other factor, so choices have to be made  e/x the government cant spend a tax dollar on both national defense and environmental protection, they must choose how to spend that dollar o choices can be made based off of incentives  incentives are rewards that encourage an action or a penalty that discourage one  economics is the social science that studies the choices that individuals, businesses, governments make as they cope with scarcity and the incentives that influence and reconcile those choices o divided into micro and macro economics  microeconomics is the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments  e/x why are people downloading more movies?  e/x how would a tax on e-commerce affect eBay?  macroeconomics is the study of the performance of the national economy and the global economy.  e/x why is the Canadian unemployment rate so high?  e/x can the Bank of Canada make our economy expand by cutting interest rates? Goods, Services, and Business  goods and services are the objects that people value and produce to satisfy human wants o goods are physical objects o services are intangible tasks performed for people  goods and services are produced using productive resources that economists call factors of productions o factors of production are grouped into four categories  Land  land includes minerals, oil, gas, coal, water, air, forests and fish  land and water is renewable, but others are non-renewable  Labour  the time and work effort that people devote to producing goods and services is called labour  includes all physical and mental efforts of all the people who put forth an effort to complete the text  the quality of labour depends on human capital, the knowledge and skill that people obtain from education, training, and experience (human capital grows with work experience)  Capital  the tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services are called physical capital o financial capital is the money that is used to buy physical capital, but as it is not used to produce goods and services, it is not a productive resources  Entrepreneurship  the human resource that organizes labour, land, and capital is called entrepreneurship  people earn their incomes by selling the services of productions that they own o land earns rent o labour earns wages o capital earns interest o entrepreneurship earns profit  overall, labour earns the most income o wages and fringe benefits account for about 70% of total income Self-Interest and Social Interest  a choice made in self interest is the choice made that is the best available for one o you order a pizza for delivery because it is convenient for you, not because you believe the delivery person needs an income  a choice is made in social interest if it leads to an outcome that is best for society at a whole o has two dimensions: efficiency and equity (fairness)  what is best for society is an efficient and fair use of resources o efficiency is achieved when the available resources are used to produce goods and services at the lowest possible cost and in the quantities that give the greatest possible value  globalization means the expansion of international trade, borrowing and lending, and investment o globalization is in the self-i
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