Ch 1 - What is Economics?

**Economics**

is 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**

inability to satisfy all our wants

**Choices**

choices we must make depending on the scarcity we face. They also depend on the incentives we face

An **incentive**

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

**Microeconomics**

is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments

**Macroeconomics**

the study of performance of the national and global economies

Two big economic questions

1. How, what, and for whom?
2. Self interest and social interest?

**Goods and services**

the objects that people value and produce to satisfy human wants

What should we produce?

figuring out what to produce depends on the resources available. Markets should do research and figure out what is missing from the current market. producing goods is dependent on what consumers want and available resources

How to produce?

Depends on the 4 factors of production: land, labour, capital, entrepreneurship. These must be available in order to produce goods and services

For whom do we produce?

target audience helps set the produce price and establishes where these goods and services can be sold (to which economic class). Who gets these goods and services depends on the income people earn.

* land earns rent
* labour earns wages
* capital earns interest
* entre earns profit

Self interest

are the choices made that are in your best interest. It is the idea that the best economic benefit can be achieved when individuals act in their own self interest.

How are self interest and social interest connected

For example, people work to make money (self interest), however, by working hard, you are improving economic activity and being productive. self interest eventually leads to behaviours that benefits others. A bad effect on society means that there is market failure

Social interest

Self interested choices promote the social interest if they lead to an outcome that is best for the society as a whole. this outcome should efficiently use goods and fairly distribute goods and services

Factors of production

* Land: gift of nature that is used to produce goods and services
* Labour: work time and work effort that people devote to producing goods and services
* **Capital**: tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services
* **Entrepreneurship**: human resources that organises land, labour, and capital

Tradeoff

choose to gain something on the expense of something else. this is also called an exchange

**Marginal benefit (MB)**

Benefit from pursuing an incremental increase in activity 

**Margins**

the benefit of allocating resources compared to the cost

**Marginal Cost (MC)**

the opportunity cost of pursuing an incremental increase in an activity