Chapter 1 - ECON 1000

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Published on 12 Oct 2011
School
York University
Department
Economics
Course
ECON 1000
Professor
Scarcity is the inability to satisfy all our wants
Economic questions stem from scarcity
Land, labour, capital, entrepreneurship
What we can as society is limited by productive resources
Incentives are rewards that encourage or discourage an action
Choices we make depend on incentives
How they interact in markets
Influence of government
Example: Why are people buying more DVDs and fewer movie tickets?
Microeconomics: choices that individuals and businesses make
Can Bank of Canada keep our inflation rate under control by raising interest rate?
Example: Why did inflation in Canada rise in 2008?
Macroeconomics: study of national and global economic performance
Economics studies choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and incentives that influence and
reconcile those choices
How do choices end up determining what, how, and for whom goods and services are produced?
How can choices made in the pursuit of self-interest also promote the social interest?
Two Big Economic Questions
What, How and For Whom?
Goods: physical objects like cell phones and automobiles.
Services: tasks performed for people, such as cell phone service and auto-repair service.
Goods and services are objects that people value and produce to satisfy human wants.
What is produced changes over time
The past had more people working on farms, now more than 75% of working Canadians have service jobs
What:
Gifts of nature
Also known as natural resources
Example: minerals, oil, gas, coal, water, air, forests, and fish
Some are renewable some are not
Land
Work time and work effort that people devote to producing goods and services
Physical and mental efforts of all people who work on farms and offices
Knowledge and skill people obtain from education, on-the-job training, and work experience
Example: economics course
Grows overtime as a society (more people in university)
Quality is dependent on human capital
Labour
Tools, instruments, machines, buildings, and other constructions used to produce goods and services called capital
Important in enabling businesses to borrow funds but does not produce goods and services
Money is financial capital not Capital
Capital
Human resource that organizes labour, land, and capital
New ideas regarding what, how to produce items & make business decisions and bear risks that arise from decisions
Entrepreneurship
Goods and services are produced with factors of production
How:
Who consumes goods and services produced depends on incomes that people earn
Large income allows one to buy large quantities of goods and services, small income --> small quantities
Land --> rent
Labour --> wages
Capital --> interest
Entrepreneurship --> profit
Income is earned by selling services of factors of production one owns
Labour earns the most income (70%)
Example: CEO may earn billions (entrepreneurship), Cleaners earn minimum wage (labour)
Knowing how income is shared among factors doesn't tell us how it is shared among individuals
Poorest 20% earn 5% of total income
Richest 20% earn nearly 50% of total income
Therefore: Richest 20% earn 10x more than poorest 20%
To understand who consumes goods and services one looks at percentage of total income earned by different groups
For Whom:
Everyday each individual makes economic choices that result in what, how, and for whom goods and services are produced
How Can the Pursuit of Self-Interest Promote the Social Interest?
Choices are in self-interest if it is the best choice for you
Example: You order pizza because you're hungry not because delivery man needs an income
Each self-interested choice affects thousands of others who produce and deliver goods and services you buy or sell
Everybody makes their own choice in self interest (what to produce, how to produce; who to hire, who to work for)
Example: pizza delivery man is earning income and looking for a tip, not to do a favour
Self-interest
Social Interest
Chapter 1 - What is Economics
October-11-11
10:17 AM
ECON 1000 Page 1
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Document Summary

Scarcity is the inability to satisfy all our wants. What we can as society is limited by productive resources. Incentives are rewards that encourage or discourage an action. Economics studies choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and incentives that influence and reconcile those choices. Macroeconomics: study of national and global economic performance. Goods and services are objects that people value and produce to satisfy human wants. Goods: physical objects like cell phones and automobiles. Services: tasks performed for people, such as cell phone service and auto-repair service. The past had more people working on farms, now more than 75% of working canadians have service jobs. Goods and services are produced with factors of production. Example: minerals, oil, gas, coal, water, air, forests, and fish. Work time and work effort that people devote to producing goods and services. Physical and mental efforts of all people who work on farms and offices.