Chapter 1 Notes
• Scarcity: Our inability to get everything we want
o Because we can’t get everything we want, we must make choices
• Incentive: Areward that encourages an action or a penalty that discourages one
o Ex. Prices
• 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
o Microeconomics: The study of the choices that individuals and businesses make, the way these choices
interact in markets, and the influence of governments
Ex. of microeconomic questions: Why are people downloading movies? How would a tax on e-
commerce affect eBay?
o Macroeconomics: The study of the performance of the national economy and the global economy
Ex. of macroeconomic questions: Why is the U.S. unemployment rate so high? Can the Federal
Reserve make our economy expand by cutting interest rates?
• Goods and services: The objects that people value and produce to satisfy wants. Goods are physical objects such
as cell phones. Services are tasks performed for people such as cell-phone service.
• Factors of production: The resources used to produce goods and services
1. Land: Natural resources- minerals, oil, gas, coal, water, air, etc.
2. Labor: Physical and mental efforts of all the people who work on farms and construction sites and in
factories, shops, and offices
a. Human capital: Quality of labor depends on this; the knowledge and skill that people obtain
from education, on-the-job training, and work experience. Your human capital will grow as
you gain work experience. Human capital also expands over time because more and more
people are getting education.
3. Capital: The tools, instruments, machines, buildings, and other constructions that businesses use to
produce goods and services
4. Entrepreneurship: The human resource that organizes labor, land, and capital. Entrepreneurs are the
drivers of economic progress. They develop new ideas about what and how to produce, make
business decisions, and bear the risks that arise from these decisions
• People earn their incomes by selling the services of the factors of production they own:
o Land earns rent
o Labor earns wages
o Capital earns interest