Micro-Economics: What is Economics (Ch.1)

This chapter explains the basics of economics—how people make choices because resources are limited. It introduces key ideas like scarcity, opportunity cost, and the main economic questions of what to produce, how to produce, and for whom. It shows how these choices affect everyday life and decisions.

Scarcity

Resources are limited so society cannot produce all the goods and services people wish to have

Economics

The study of how society manages its scarce resources

Incentives

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

Microeconomics 

The study of the choices that individuals make

• The way these choices interact in markets and the influence of governments

• EX. Why are people streaming more movies

Macroeconomics

The study of the performance of the national economy and the global economy

• EX. Why does the unemployment rate in Canada fluctuate?

Two Big Economic Questions

1. How do choices end up determining what, how, and for whom goods and services get produces?
   

2. When do choices made in the pursuit of self-interest also promote the social interest?

What?

What we produce across countries and change over time. 

How? Factors of Production?

Land → Gifts of Nature or natural resources

Labour → Effort and Time

Capital → Tools, intruments, machines, buildings, other constructions

Entrepreneurship → Human resources that organize land, labour and capital

For Whom?

These are who consume the goods and services

Land → Earns Rent

Labour → Earns Wages

Capital → Earns Interest

Entrepreneurship → Earns Profit

Self Interest

You make choices that you think are best for you

Social Interest

Choices that are best for society as a whole

• Two Dimensions: Equity and Efficiency

Efficiency

It is not possible to make someone better off without making someone else worse off.

The property of society getting the most it can from its scarce resources

Equity

Fairness, but economists have a variety of views about what is fair

The property of distributing economic propsperity fairly among the members of society

The Economic Way of Thinking: A Choice is a Tradeoff

A constraint that involves giving up one thing to get something else

The Economic Way of Thinking: Making a Rational Choice

A choice that compares costs and benefits and achieves the greatest benefit over cost.

The Economic Way of Thinking: Benefit - What you Gain

The gain or pleasure that it brings and is determined by preferance. 

• Economist measure benefit as the most a person is willing to get something

• EX. A lot are willing to give up things to excel in school. 

The Economic Way of Thinking: Cost - What you MUST Give Up (Opportunity Cost)

The highest valued alternative that must be given up to get it. Whenever you choose one thing, you miss out on something else. That something else is the opportunity cost.

The Economic Way of Thinking: Marginal Benefit

The benefit you recieve when you increase an activity (for consumers)

The Economic Way of Thinking: Marginal Cost

The opportunity cost you deal with when you increase an activity (for producers)

The Economic Way of Thinking: Incentives

Something that induces a person to act. 

Ceteris Paribus

Used when you want to look at the effect of one thing while assuming nothing else changes