Chapter 1: What is Economics?

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.

scarcity

the inability to satisfy all our wants

incentive

a reward that encourages an action or a penalty that discourages an action

microeconomics

the study of the choices that individuals and businesses make, the way those choices interact in market, and the influence of goernments.

macroeconomics

the study of the performance of the national and global economies

factors of production

the resources people use to produce goods and services. includes land, labor, capital, and entrepreneurship

land

the “gifts of nature” that we use to produce goods and services

labor

the work time and work effort that people devote to producing goods and services

human capital

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.

entrepreneurship

the human resource that organizes land, labor, and capital.

self interest

the choices that are best for you

social interest

choices that are best for society as a whole

benefit

what you gain from something

cost

what you must give up to get something

rational choice

a choice that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice

opportunity cost

the cost of giving up the highest-valued alternative for another choice.

preferences

something that a person likes and dislikes and the intensity of those feelings

marginal benefit

the benefit form pursuing and incremental increase in an activity

marginal cost

the opportunity cost of pursuing an incremental increase in an activity

economic model

a description of some aspect of the economic world that includes only the specific features that are needed for the purpose at hand.