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chapterone - Part 1 What is Economics Definition of...

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Part 1: What is Economics? Definition of Economics Scarcity : our inability to satisfy all our wants >> choose among available alternatives - Choices that we make depend on the incentives that we face Incentive : a reward that encourages or a penalty that discourages an action Economics : 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. Microeconomics : the study of the choices that individuals an businesses make, the way these choices interact in markets, and the influence of governments. Macroeconomics : the study of the performance of the national economy and the global economy. Two Big Economic Questions 1. How do choices end up determining what , how , and for whom goods and services get produced? What? >>What we produce changes over time. How? >> Goods and services are produced using productive resources called factors of production : Land, Labor, Capital and Entrepreneurship - Land : “gifts of nature” used to produce goods and services; natural resources. Includes metal ores, oil, gas and coal, water and air. - Labor : the work time and work effort that people devote to producing goods and services. Includes physical and mental efforts. o Quality depends on human capital : the knowledge and skill that people obtain from education, on-the-job training, and work experience. o Human capital expands over time. - Capital : the tools, instruments, machines, buildings, and other constructions that businesses now use to produce goods and services o Financial capital: money, stocks, and bonds. Not used to produce goods and services. Not capital! - Entrepreneurship : the human resource that organizes labor, land, and capital For Whom? >> People earn their incomes by selling the services of the factors of production they own: - Land earns rent . - Labor earns wages . - Capital earns interest . - Entrepreneurship earns profit . - The factor of production that earns most income is labor. Wages and fringe benefits are around 70% of total income. Land, capital, and entrepreneurship share the rest. - We can get a good sense of who consumes the goods and services produced by looking at the percentages of total income earned. - On the average, people in the top 20% earn more than 12x the incomes of those in the bottom 20%.
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2. When do choices made in the pursuit of self-interest also promote the social interest ? - You make choices that are in your self-interest : choices that you think are best for you. - Choices that are the best for society as a whole are said to be in social interest . Ten Topics that Generate Heated Discussion Today >> - Privatization : Nov.9, 1989, Berlin Wall falls and two Germanys unified. o
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chapterone - Part 1 What is Economics Definition of...

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