Lecture Notes: Chapter 1 – What is Economics?
Based on Microeconomics: Canada in the Global Environment, 11th Edition
Introduction
Economics is more than just numbers and graphs—it's a way of understanding how individuals,
businesses, and societies make decisions in a world where resources are limited. This chapter
introduces the basic principles of economics, including the distinction between microeconomics
and macroeconomics, the central questions of the discipline, and how economists approach
problems. We’ll also explore how studying economics can open doors to a wide variety of career
paths.
1. What is Economics? Microeconomics vs. Macroeconomics
At its core, economics is the social science of choice. It examines how people use limited
resources to satisfy unlimited wants. Every choice involves a cost because resources—such as
time, money, labor, and raw materials—are scarce.
Microeconomics
Microeconomics focuses on the decisions of individuals, households, businesses, and how they
interact in specific markets. It addresses questions such as:
Why do people buy more apples when the price falls?
How does a new competitor affect the prices in a local coffee shop market?
What determines wages in different industries?
Example:
If the price of chicken falls, a family may buy more chicken and less beef. This is a
microeconomic decision related to consumer choice.
Macroeconomics
Macroeconomics looks at the economy as a whole. It studies aggregate indicators such as
national income, inflation, unemployment, and GDP growth. It explores broader issues like:
What causes inflation?
How does government spending affect the overall economy?
Why do economies experience recessions?
Example:
If the government increases interest rates to control inflation, it affects borrowing and spending
across the entire country. That’s macroeconomics.
, 2. The Two Big Questions of Economics
Economics seeks to answer two key questions that shape all economic activity:
1. How do choices determine what, how, and for whom goods and services are produced?
Every economy must make decisions about:
What to produce: Should we produce more cars or more hospitals?
How to produce: Should we rely on machines or manual labor?
For whom to produce: Who gets access to goods—those who can afford them, or
should they be distributed based on need?
Example:
Canada has to decide whether to allocate more of its resources to building military equipment or
investing in green energy. That’s a “what to produce” decision.
2. When do choices made in self-interest also promote the social interest?
People generally act in self-interest—trying to benefit themselves. But under the right
conditions, these self-interested decisions can also improve outcomes for society as a whole
(social interest).
Example:
A company innovates a cheaper and more efficient electric car to make a profit. Consumers get a
better product, and society benefits from lower emissions. That’s a case where self-interest
promotes the social interest.
But the reverse can also be true. If a factory pollutes a river to cut costs, it harms the community.
In this case, self-interest conflicts with the social interest, which may require government
regulation.
3. The Economic Way of Thinking
Economists have a unique lens through which they view the world. The economic way of
thinking includes several key ideas:
1. Choices are trade-offs
Because we can’t have everything, choosing one thing means giving up something else.
Based on Microeconomics: Canada in the Global Environment, 11th Edition
Introduction
Economics is more than just numbers and graphs—it's a way of understanding how individuals,
businesses, and societies make decisions in a world where resources are limited. This chapter
introduces the basic principles of economics, including the distinction between microeconomics
and macroeconomics, the central questions of the discipline, and how economists approach
problems. We’ll also explore how studying economics can open doors to a wide variety of career
paths.
1. What is Economics? Microeconomics vs. Macroeconomics
At its core, economics is the social science of choice. It examines how people use limited
resources to satisfy unlimited wants. Every choice involves a cost because resources—such as
time, money, labor, and raw materials—are scarce.
Microeconomics
Microeconomics focuses on the decisions of individuals, households, businesses, and how they
interact in specific markets. It addresses questions such as:
Why do people buy more apples when the price falls?
How does a new competitor affect the prices in a local coffee shop market?
What determines wages in different industries?
Example:
If the price of chicken falls, a family may buy more chicken and less beef. This is a
microeconomic decision related to consumer choice.
Macroeconomics
Macroeconomics looks at the economy as a whole. It studies aggregate indicators such as
national income, inflation, unemployment, and GDP growth. It explores broader issues like:
What causes inflation?
How does government spending affect the overall economy?
Why do economies experience recessions?
Example:
If the government increases interest rates to control inflation, it affects borrowing and spending
across the entire country. That’s macroeconomics.
, 2. The Two Big Questions of Economics
Economics seeks to answer two key questions that shape all economic activity:
1. How do choices determine what, how, and for whom goods and services are produced?
Every economy must make decisions about:
What to produce: Should we produce more cars or more hospitals?
How to produce: Should we rely on machines or manual labor?
For whom to produce: Who gets access to goods—those who can afford them, or
should they be distributed based on need?
Example:
Canada has to decide whether to allocate more of its resources to building military equipment or
investing in green energy. That’s a “what to produce” decision.
2. When do choices made in self-interest also promote the social interest?
People generally act in self-interest—trying to benefit themselves. But under the right
conditions, these self-interested decisions can also improve outcomes for society as a whole
(social interest).
Example:
A company innovates a cheaper and more efficient electric car to make a profit. Consumers get a
better product, and society benefits from lower emissions. That’s a case where self-interest
promotes the social interest.
But the reverse can also be true. If a factory pollutes a river to cut costs, it harms the community.
In this case, self-interest conflicts with the social interest, which may require government
regulation.
3. The Economic Way of Thinking
Economists have a unique lens through which they view the world. The economic way of
thinking includes several key ideas:
1. Choices are trade-offs
Because we can’t have everything, choosing one thing means giving up something else.
