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

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
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%.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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 West Germany: Pursue self-interest o East Germany: Communist state – economy managed by government central economic planning agency. Operated like one giant firm.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern