Home## **What is Economics?** - Economics is considered the science of choice. - We want more that what we can afford - Our inability to afford everything we want is called **scarcity**. This is a universal experience that everyone usually faces within their lifetime. - What you can afford is limited by your income and the price that come with the physical items you desire - What governments can afford is based on how much taxes people pay - All physical items are limited by the productive resources available **Everything isn’t attainable!! Therefore we must make choices on how we want to spend our money and time.** - Choices often align with ones **Incentives** - **Incentives** is a reward that encourages an action or discourages someone. **Microeconomics:** - The study of choices that individuals and businesses make which therefore effects markets, influences the government and the overall societal picture. - Ex. How would a tax on online shopping affect amazon? **Macroeconomics** - The study of national economies and global economic performances. - Ex. Why does the unemployment rate in Canada fluctuate? ## Two Big Economic Questions - How do choices end up determining what, how, and for whom goods and services are produced? - Do choices made in the pursuit of self-interest also promote the social interest? ### What, How, and For whom? Goods and services are the objects people value and produve to satify wants. - Goods are physical objects - Services are tasks performed for people **What?** - What we produce across countries can vary overtime. **How?** - We use resources in order to produce goods and services called the **factors of production** - Land - Labor - Capital - Entrepreneurship - Land - The natural resources that are provided by the environment - Labor - The work time and effort people devote to producing goods and services - Depending on the quality we have to look at **human capital.** - This means that people who have studied and trained the trade will produce a higher quality of work. - Capital - The physical aspects such as tools, instruments, machines, buildings, etc. - Entrepreneurship - They are the drivers of economic progress and are constantly producing new ideas and how they analyze the risk and benefits. **For Whom?** - Who consumes the goods and services is dependent on peoples income and wealth. - People earn their wealth from… - Land earns rent - Labor earns wages - Capital earns interest - Entrepreneurship earns profit ## Self-Interest and Social Interest Self-Interest - You make choices that are the best available one to you. - How you feel influences your choices. Social Interest - If it is best for society as a whole **Efficiency and the Social Interest** - The goal is to be **efficient** - To have a balance - The struggle is that it is not possible to make someone better off without making someone else worse off. **Fair Shares and the Social Interest** - Four issues in today’s world puts some perspective into how we should look at the scenario. - Globalization - Information-age monopolies - Climate change - The gender pay gap **Globalization** - the expansion of international trade, borrowing, lending, and investment. - This is in the self-interest of firms as they can produce an item for a cheaper amount in another country. - This can cause job loss for the items origination in one country when it is produced somewhere else **Information-Age Monopolies** - The size and market power of these companies enables them to have the ability of pricing items higher than necessary - When a company has a popular brand name people also purchase the brand name when buying items from them - This means that people acknowledge a high end brand more than an unknown one. **Climate Change** - Burning fossil fuels to generate several areas of power causes a lot of carbon emissions. - When making the choice a company is making a self-interest choice to use these resources which further damages the land. **The Gender Pay Gap** - Part of it is how men are seen as doing higher paid jobs and women do lower ## The protest against Market Capitalism - Market capitalism is an economics system in which individuals own land and capital and are free to buy and sell land, capital, and goods and services in markets. - This generates a lot of wealth for a small percentage of people in the world - Centrally planned socialism is an economic system in which the governments owns all the land and capital, direct workers to jobs, and decides what, how, and for whom to produce. - Ex. The soviet union - Our economy today consists of a mixed economy ## The Economic Way of Thinking The six key ideas that define the economic way of thinking. - A choice is a tradeoff - People are making rational choices by comparing benefits and costs - Benefit is what you gain from something - Cost is what you must give up to get something - Most choices are “how much” choices made at the margin - Choices respond to incentives **A choice is a tradeoff** - This is an exchange of giving up one thing to get another - Due to scarcity we make the choices of what we must give up - For example do you go to a ball game or do you stay home and save the money you would have spent at the ball game. **Making a Rational Choice** - A rational choice is one that compares the costs and benefits and the achieves the greatest benefit over cost for the person making the choice. - Only the wants of the person’s desires become relevant to their choice. **Benefit: What you Gain** - The benefit is the game or pleasure that it brings and is determined by someone's preferences - Benefits vary largely like going to school or feeling happy you ordered a pizza - **Economists measure this benefit as the most that a person is willing to give up to get something.** **Cost: What You must Give Up** - The **opportunity cost** of something is the highest-valued alternative that must be given up to get it. **How Much? Choosing at the Margin** - The choice when allocating your time to certain things is making your choice at the margin - **Marginal benefit** is the benefit you receive when you increase an activity. - **Marginal cost** is the opportunity cost you incur when you an increase an activity. - You must compare both when making a decision **Choices Respond to Incentives** - The idea is that we can predict the self-interested choices that people will make **Positive Statements** - A positive statement might be right or wrong but can always be tested by fac checking it. **Normative Statements** - This statement relates to what should be and varies depending on its ability to be tested and someone internal opinion of the matter. **Unscrambling Cause and Effect** - An economics model is a description of some aspect pf the economic world that includes only those features that are needed for the purpose at hand. **Economics as Policy Adviser** - Economics is used as a toolkit for advising governments and businesses and for making personal choices. - Economics can be used to clarify the goal and choice.ov