Economics 114
Chapter 1: What is economics?
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 those choices
Microeconomics: Study of choices that individuals and businesses make, the way those
choices interact in markets, and the influence of government
Macroeconomics: study of performance of the national and global economies
2 big economic questions
1. How do choices end up determining what, how and for whom goods and services get
produced
- What we produce changes over time (consumer preference, resources available, technology)
- How we produce is described by the technologies and resources used
- Resources used to produce goods and services are called factors of production
- Land: “Gifts of nature”, consists of natural resources (minerals, oil, coal, water,
air, forests, animals)
- Labour: The work time and effort people put into producing goods and
services. Includes all physical and mental efforts.
- Quality of labour depends on human capital (knowledge and skill
obtained through education, on the job training, work experience)
- Capital: The tools, instruments, machines, buildings and other
constructions that businesses use to produce goods and services
- Money, stocks and bonds are financial capital and can be used to
buy physical capital, but are not factors of production themselves
- Entrepreneurship: The human resource that organises labour, land, and
capital. They are the drivers of economic progress (develop new ideas about
what and how to produce, make business decisions and bear the risks of those decisions)
- Who consumes the goods and services that are produced depends on the incomes
people earn (people with large incomes can choose from a wide variety, people with less income have fewer
options and can afford a smaller range of goods)
- People earn incomes by selling the service of the factor of production they
own
- Land earns rent
- Labour earns wages
- Capital earns interest
- Entrepreneurship earns profit
Chapter 1: What is economics?
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 those choices
Microeconomics: Study of choices that individuals and businesses make, the way those
choices interact in markets, and the influence of government
Macroeconomics: study of performance of the national and global economies
2 big economic questions
1. How do choices end up determining what, how and for whom goods and services get
produced
- What we produce changes over time (consumer preference, resources available, technology)
- How we produce is described by the technologies and resources used
- Resources used to produce goods and services are called factors of production
- Land: “Gifts of nature”, consists of natural resources (minerals, oil, coal, water,
air, forests, animals)
- Labour: The work time and effort people put into producing goods and
services. Includes all physical and mental efforts.
- Quality of labour depends on human capital (knowledge and skill
obtained through education, on the job training, work experience)
- Capital: The tools, instruments, machines, buildings and other
constructions that businesses use to produce goods and services
- Money, stocks and bonds are financial capital and can be used to
buy physical capital, but are not factors of production themselves
- Entrepreneurship: The human resource that organises labour, land, and
capital. They are the drivers of economic progress (develop new ideas about
what and how to produce, make business decisions and bear the risks of those decisions)
- Who consumes the goods and services that are produced depends on the incomes
people earn (people with large incomes can choose from a wide variety, people with less income have fewer
options and can afford a smaller range of goods)
- People earn incomes by selling the service of the factor of production they
own
- Land earns rent
- Labour earns wages
- Capital earns interest
- Entrepreneurship earns profit
