Chapter 1: Economic Issues and Concepts
I. Issues of Pressing Concern
• COVID-19 Pandemic: employment and gov debt
• Population Aging: labor force, wages + healthcare – gov fiscal (developed
countries)
• Climate Change – policy
• Productivity Growth and Accelerating Technological Change – the heart of
the long-term increase in average living standards - technological change is
an important driver of our long-run prosperity
• Rising Protectionism – less international trade -> less global production and
income
• Growing Income Inequality
• Government Debt and Priorities
I.1. What is Economics
- We live in a world of scarcity.
- Economics is the study of the use of scarce resources to satisfy unlimited
human wants
Resources = Land + Labour + Capital
a. Land
+ Natural endowments: arable land, forests, lakes, crude oil, and minerals
b. Labour
+ Mental and physical human resources: entrepreneurial capacity and
management skills.
c. Capital:
+ manufactured aids to production: tools, machinery, and buildings
Factors of production because they are used to produce the things that
people desire
What is produces = goods + services
- Goods are tangible (e.g., cars, steel, and clothing)
- Services are intangible (e.g., legal advice, internet access, and education).
- The act of making them is called production
- The act of using them is called consumption.
Scarcity and Choice
, Scarcity implies that choices must be made, and making choices implies the
existence of costs.
Opportunity Cost
- Scarce resources force a choice among competing alternatives
- Every time a choice is made, opportunity costs are incurred.
- The opportunity cost of choosing any one alternative is the value of the
next best alternative that is given up.
- It is the cost measured in terms of other goods and services that could have
been obtained instead.
- The opportunity costs of the two activities are inverses of one another.
Production Possibilities Boundary
- If resources are fully and efficiently employed it is not possible to have more
of both consumption and investment goods.
- The opportunity cost of the extra consumption goods is the value of the
investment goods forgone.
I. Issues of Pressing Concern
• COVID-19 Pandemic: employment and gov debt
• Population Aging: labor force, wages + healthcare – gov fiscal (developed
countries)
• Climate Change – policy
• Productivity Growth and Accelerating Technological Change – the heart of
the long-term increase in average living standards - technological change is
an important driver of our long-run prosperity
• Rising Protectionism – less international trade -> less global production and
income
• Growing Income Inequality
• Government Debt and Priorities
I.1. What is Economics
- We live in a world of scarcity.
- Economics is the study of the use of scarce resources to satisfy unlimited
human wants
Resources = Land + Labour + Capital
a. Land
+ Natural endowments: arable land, forests, lakes, crude oil, and minerals
b. Labour
+ Mental and physical human resources: entrepreneurial capacity and
management skills.
c. Capital:
+ manufactured aids to production: tools, machinery, and buildings
Factors of production because they are used to produce the things that
people desire
What is produces = goods + services
- Goods are tangible (e.g., cars, steel, and clothing)
- Services are intangible (e.g., legal advice, internet access, and education).
- The act of making them is called production
- The act of using them is called consumption.
Scarcity and Choice
, Scarcity implies that choices must be made, and making choices implies the
existence of costs.
Opportunity Cost
- Scarce resources force a choice among competing alternatives
- Every time a choice is made, opportunity costs are incurred.
- The opportunity cost of choosing any one alternative is the value of the
next best alternative that is given up.
- It is the cost measured in terms of other goods and services that could have
been obtained instead.
- The opportunity costs of the two activities are inverses of one another.
Production Possibilities Boundary
- If resources are fully and efficiently employed it is not possible to have more
of both consumption and investment goods.
- The opportunity cost of the extra consumption goods is the value of the
investment goods forgone.
