ECON 1000 Chapter Notes - Chapter 1: Financial Capital, Human Capital
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Econ1000- Chapter 1
What is 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 those choices.
Microeconomics: is the study of the choices that individuals and
businesses make, the way these choices interact in markets, and the
influence of governments. “Why are people downloading more movies?”
“How would a tax on e-commerce affect eBAY?”
Macroeconomics: is the study of the performance of the national economy
and the global economy. Some examples of macroeconomic questions are:
Why is the Canadian unemployment rate so high? Can the Bank of Canada
make our economy expand by cutting interest rates?
Two big questions summarize the scope of economics:
- How do choices end up determining what, how and for whom goods and
services are produced?
- Can the choices that people make in the pursuit of their own self0interest
also promote the broader social interest?
What, how and for Whom?
What? What we produce varies across countries and changes over time. In
Canada today, agriculture accounts fro 2% of total production, manufactured
goods for 20%, and services (retail and wholesale trade, health care, and
education) for 78%.
How? Goods and services are produces by using productive resources that
economists call factors of production. Factors of production are grouped into
four categories: Land, Labour, Capital, Entrepreneurship.
Land: The gifts of nature that we use to produce goods and services are
called land. In economics, is what is called natural resources. It includes land
in the everyday sense together with minerals, oil, gas, coal, water, air,
forests and fish.
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Labour: The work time and work effort that people devote to producing
goods and servies is called labour. Labour includes physical and mental
efforts of all the people who work on farms and construction sites and in
factories, shops and offices. 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.
Capital: The tools, instruments, machines, buildings, and other constructions
that businesses use to produce goods and services are called capital. In
everyday language, we talk about money, stocks, and bonds as being
“capital”. These items are financial capital. Financial capital plays an
important role in enabling business to borrow the funds that they use to buy
Entrepreneurship: The human resources that organizes labour, land and
capital is called entrepreneurship. Entrepreneurs come up with new ideas
about what how to produce, make business decisions and bear the risks that
arise from these decisions. What determines the quantities of factors of
production that are used to produce goods and services?
For whom? Who consumes the goods and services that are produces
depends on the incomes that people earn. People with large incomes that
people earn. People with large incomes can buy a wide range of goods and
Land earns rent
Labour earn wages
Capital earns interest
Entrepreneurship earns profit
Can the pursuit of self-interest promote the social interest?
Everyday, you and 33 million other Canadians along with 7 billion people in
the rest of the world, make economic choices that result in what, how and
for whom goods and services are produced.
Self Interest: A choice is in your self-interest if you think that choice is the
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