## **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

Scarcity

Our inability to afford everything we want

Incentives

Is a reward that encourages an action or discourages someone

Marginal benefit

The benefit you receive when you increase an activity

Marginal cost

The opportunity cost you incur when you increase an activity