Everything you need to know to ace your ECON 101 exam can be found within this document. Complete and thorough explanations of principles of Microeconomics
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ECON - Chapter 1 (TB Notes)
Definition of Economics
Economics: 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.
Scarcity: our inability to satisfy all wants
—bc you HAVE to sacrifice one thing for another when making a choice
Incentive: a reward that encourages an action OR a penalty that discourages
one
Ex. Price : If the price of a laptop is too high, more will be offered for sale
than people want to buy. And if the price is too low, fewer will be offered
for sale than people want to buy. But there is a price at which choices to
buy and sell are consistent.
Macroeconomics: Microeconomics:
- study of the performance of the - study of the choices that individuals
national economy & the global & businesses make and how these
economy. interact in markets & influence of
- Ex: Why does the Canadian governments
unemployment rate fluctuate? Can the - Ex: Why are people downloading
Bank of Canada make the more movies? How would a tax on e-
unemployment rate fall by keeping commerce affect eBay?
interest rates low?
Two Big Economic Questions
How do choices end up determining what, how, and for whom goods and
services are produced?
ECON - Chapter 1 TB Notes) 1
, Do choices made in the pursuit of self-interest also promote the social
interest ?
What, How, and For Whom?
Goods and Services: the objects that people value / produce to satisfy wants.
Goods = physical objects (cellphones, automobiles)
Services = tasks performed for people (cellphone service, auto-repair service)
What To Produce?
Varies across countries & changes overs times
In Canada today In China today,
agriculture = 2% of total agriculture = 8% of total
production production
manufactured goods = 28% manufactured goods = 41%
services = 70% services = 51%
Figure 1.1 What Three Countries Produce
Agriculture & manufacturing = small % of production in rich countries (i.e.
Canada) and large % of production in poorer countries (i.e. Ethiopia)
Most of what is produced in Canada is services.
Optimal choices for:
Individuals- satisfy personal desires
Firms- maximize profit
Government- maximize social welfare
How To Produce?
ECON - Chapter 1 TB Notes) 2
, described by the technologies and resources that we use
factors of production = resources used to produce goods/ services grouped
in 4 categories
Land
"gifts of nature"/ natural resources used to produce goods/services
ex: mineral, gas, coal, water, air, forests, and fish
land surface & water resources are renewable, & some of our mineral
resources can be recycled BUT the resources used to create energy =
nonrenewable (can be used only once)
Labour
the work, time & effort ppl devote to producing goods/services
ex: physical and mental efforts of people who work on farms,
construction sites, factories, shops, & offices
quality of labour depends on Human capital (the knowledge/skill that
people gain from education, on-the-job training, and work experience)
which expands over time
Capital
tools, instruments, machines, buildings, and other constructions that
businesses use to produce goods/services
money, stocks, and bonds = financial capital *not used to produces
g/s therefore not a factor of production
financial capital — plays big role in enabling business to borrow
funds so that they can buy physical capital
Entrepreneurship
the human resources that organizes the other 2 factors of production:
labour, land and capital
entrepreneurs = drivers of economic progress, develop new ideas abt
what/how to produce, make business decisions and bear risks from
these decisions
ECON - Chapter 1 TB Notes) 3
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