9FA1_2 - Econ 1A What is Economics 1 Women Men Wants...

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Econ. 1A What is Economics ? 1. Women & Men Nature Wants Resources Desires Goods Preferences Opportunities Choice Economics is concerned with wants and resources. 2. Resources are limited , but wants are unlimited . wants > resources available scarcity faced with scarcity, we must choose among the available alternatives choice the choices that we make depend upon the incentives that we face an incentive is a reward that encourages an action or a penalty that discourages one Economics is the science of choice . 3. Economics is a social science that studies choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. 4. The subject of economics is divided into two main parts: microeconomics and macroeconomics Microeconomics is the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments. Macroeconomics is the study of the performance of the national economy and the global economy. That is choices of individuals and businesses and governments, and the interaction of those choices in the standard of living, the cost of living and economic fluctuations (business cycle). 5. Two big economic questions (A) How do choices end up determining what, how and for whom goods and services are produced? Goods are physical objects satisfy human wants. Services are tasks performed for people such as auto-repair service and cell-phone service. (i) What goods and services are produced? Example: Agriculture Manufacturing Services China 10% 50% 40% US 1% 20% 79% (ii) How? Goods and services are produced by using productive resources (factors of production) Factors of productions (a) Land : gifts of nature that we use to produce goods and services. Land is natural resources such as minerals, oil, gas, coal, water, air, forests and fish. (b) Labor : the work time and work effort that people devote to producing goods and services. It includes the physical and mental efforts. Human capital (the quality of labor) is the knowledge and skill that people obtain from education, on-the-job training, and work experience. (c) Capital : the tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services. (d) Entrepreneurship : the human resource that organizes labor, land and capital. (iii) For whom? Who consumes the goods and services that are produced depends on the incomes that people earn. People earn their incomes by selling the services of factors of production they own. (a) Land earns rent . (b) Labor earns wages . (c) Capital earns interest . (d)Entrepreneurship earns profit .
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Wages Interest rent profits 72% 11% 3% 14% (B) How can the pursuit of self – interest promote the social interest?
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