ECON 102 Midterm Notes: Chapters 1/2/4/5 Chapter 1 Definition of Economics - Scarcity is our inability to get everything we want - Incentive is a reward that encourages an action or a penalty that discourages one - 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 - Macroeconomics is the study of the performance of the national economy and the global economy Two Big Economic Questions - FIRST BIG ECONOMICS QUESTION: How do choices end up determining what, how, and for whom goods and services are produced? - SECOND BIG ECONOMICS QUESTION: Do choices made in the pursuit of self-interest also promote the social interest? - What, how and for whom? o Goods and services are the objects that people value and produce to satisfy wants. WHAT, HOW, and FOR WHOM? o What? · What we produce varies across countries and changes over time. Some countries may produce more of a certain good or service more than another country. Canada may produce more services then China for example. · What determines these patterns of production? " How do choices end up determining the quantities of cellphones, automobiles, cellphone service, auto repair service, and the millions of other items that are produced in Canada and around the world? o How? " How we produce is described by the technologies and resources that we use. The resources used to produce goods and services are called factors of production. Which are Land, Labour, Capital, and Entrepreneurship. · Land · Labour o The gifts of nature that we use to produce goods and services. AKA natural resources. It includes minerals, oil, gas, coal, water, air, forests, and fish. Our land and surface water resources are renewable, and some mineral resources can be recycled. Some of these natural resources are not renewable.
The work time and work effort that people devote to producing goods and services is called labour. o The quality of labour depends on human capital which is the knowledge and skill that people obtain from education, on the job training, and work experience. For example, working on this economics course is building your own human capital. · Capital o The tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services o Money, stocks, and bonds are financial capital. This plays an important role in allowing businesses to borrow the funds they need to buy physical capital. Although, financial capital is not used to directly produce goods and services therefore it is not a factor of production · Entrepreneurship o The human resource that organizes labour, land, and capital o Entrepreneurs are the drivers of economic progress. They develop new ideas about what and how to produce, make business decisions, and bear the risks that arise from these decisions. " What determines how the factors of production are used to produce goods and services? o For