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Chapter 1

Chapter 1 Full Notes

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Boston College
ECON 1131

Chapter 1: The First Principles of Economics  Economics- very systematic approach  People’s interest in their material well being attained through the ordinary business of life The Economic Problem  Every economic problem has an identical three-part structure consisting of objectives, alternatives, and constraints  Objectives: the part of the economic problem that refers to the goals that economic agents try to achieve  Alternatives: the part of the economic problem that refers to the necessity of making choices o Increased choice does not necessarily bring happiness  Constraints: the part of the economic problem that refers to the limitations that prevent economic agents from achieving their objectives o No matter how cleverly we choose among the alternatives open to us, we cannot fully achieve our objectives  Law of Scarcity: the principle resources are not sufficient to achieve all the objectives, or goals, of an economic problem  Economics: the study of how to best allocate scarce resources o Choosing among the best alternatives with the constraints you have to try to achieve various goals o Not full definition The Key Players in the Economy  The individual, the business firm, and the government  Individuals- have two functions o (1) Purchase most of the final goods and services produced by the business firms (consumers: economic agents who consume goods and services and who supply the primary factors of production- labor, capital, and land to producers)  Factors of production: the resources or inputs that producers use to produce goods and services, consisting of labor, capital, land, and material inputs  Labor: different kinds of skills and occupations found in the work force  Entrepreneurs: imaginative individuals who bring new ideas to the business world and who are willing to take the risks of starting new ventures or businesses o (2) Individuals own and supply the land on which business firms build their factories and offices  Land: the property on which business firms build their factories and office buildings, includes the fertile soil and natural resources contained within the land  Capital: refers to plant and equipment  Individuals supply the funds that enable businesses to purchase these things and they receive returns  Business firms o Producers: economic agents who produce goods and services by receiving factors of production from consumers and other producers The only transactions business firms engage in that do not directly involve the individuals are the purchases by firms of semi-finished products, or material inputs from other firms  Governments are both consumers and producers of goods and services o Ex: consume/purchase weapons for defense, produce services like education o Another important funct
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