## **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
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