LS 1 - CHAPTER 1 What Is Economics Definition of Economics...

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What Is Economics? CHAPTER 1 Definition of Economics All economic questions arise because we cannot have everything that is possible to acquire. We are constrained by (time, money, etc.) Our inability to acquire everything is called scarcity . Because we face scarcity, we must make choices . The choices we make depend on the incentives we face. An incentive is a reward that encourages an action or a penalty that discourages an action. Definition of 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. To me: “Economics is how people make decisions under constraints.”
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Definition of Economics Microeconomics Microeconomics is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. Macroeconomics Macroeconomics is the study of the performance of the national and global economies. Which one is which: A or B ? Two Big Economic Questions Two big questions summarize the scope of economics: ± How do choices end up determining what , how , and for whom goods and services get produced? ± Translation: Economists study the production and allocation of goods and services. ± When do choices made in the pursuit of self-interest also promote the social interest ? Two Big Economic Questions ± How do choices end up determining what , how , and for whom goods and services get produced? What? Goods and services are the objects that people value and produce to satisfy human wants.
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Two Big Economic Questions How? Goods and services are produced by using productive resources that economists call factors of production . Factors of production are grouped into four categories: ± Land ± Labor ± Capital ± Entrepreneurship Two Big Economic Questions The “gifts of nature” that we use to produce goods and services are land . The work time and work effort that people devote to
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This note was uploaded on 11/23/2011 for the course ECON 202 taught by Professor Brightwell during the Fall '08 term at Texas A&M.

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LS 1 - CHAPTER 1 What Is Economics Definition of Economics...

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