ECON 1000

Chapter 1

-macroecon is based on individuals while microecon is based on whole;
-economics is the study of the ways that humans organize themselves to make the necessary choices
about how scarce resources are to be used to produce goods and services necessary to satisfy human
wants and needs
-3 basic concepts that motivate you and need to be satisfied: wants, needs, and desires; need to be
distinguished; wants are unlimited but limitations are attached to resources
-goods are tangible and services are intangible
-scarcity: inability to get everything we want; its universal; resources are scarce and choices are
dependent on incentives that can be positive or negative, can encourage or discourage
-what society can get is limited by productive resources (gifts of nature, human labour, previously
produced tools) available
-incentives: rewards that encourage an action or penalty that discourages it
-Factors of production: 1)land (earns rent): natural resources like land, minerals, oil, coal, water, air
forests and fish
2)labour (wages): work time and work effort that people devote to producing goods and services;
quality of labour depends on human capital gained from education, on-the-job training and work
experience
3)capital (interest) : tools, instruments, machines, building and other constructions that businesses use;
money, bonds and stocks are financial capital (financial capital does not actually produce but can
encourage purchase)
4)entrepreneurship (profit): human resource that organizes labour, land, and capital; they take risks

-a choice is self-interest if you think the choice is best for you and it is social interest if it is an efficient
and fair use of resources;
-when do choices made in the pursuit of self-interest also promote the social interest?
-globalization: self-interest of consumers and firms buying and producing at low cost but not self-
interest of low-wage workers in Malaysia and Canadian firms that cant compete with low-cost imports;
expansion of international trade, borrowing and lending and investment; it opens up the boundary for
inventions and innovations; because of globalization, how many businesses had to close down?
-information-age economy: also self-interest of consumers and firms but since Microsoft and Intel didnt
had competition, not selling at an efficient price;
-climate change: emissions continue to grow but government doesnt have the right incentives to
change it; involves both self-interest and social-interest;
-economic instability: in 2007, banks and firms constantly borrowing for their self-interest led to
depression;
-6 economic ways of thinking: 1)a choice is a tradeoff 2) making a rational choice: compares costs of
benefits and achieve the greatest benefits over cost 3)benefit is the gain or pleasures that it brings and
is determined by preferences 4)opportunity cost of something is the highest-values alternative that
must be given up to get it 5) the benefit that arises from an increase in an activity is marginal benefit
and the opportunity cost of an increase in an activity; the opportunity cost of pursuing an incremental
increase in an activity is its marginal cost 6) choices respond to incentives
-economists as social scientists: 1)positive statement is about what is currently believed about the way
the world operates 2) normative statement is about what ought to be and depends on values and
cannot be tested
-economic model is a description of some aspect of the economic world that includes only those
features that are needed for the purpose at hand; tested by comparing its predictions with the facts


Chapter 2

-Production possibilities frontier (PPF): boundary btwn those combinations of goods and services that
can be produced and those that cannot; points outside are unattainable
-points on the PPF are the lowest possible cost: production efficiency achieved; inside PPF, inefficient
-all tradeoffs involve opportunity cost which is the highest-valued alternative; opportunity cost is a ratio,
decrease in quantity produced of one divided by increase in quantity produced of another.
-marginal benefit is the benefit received from consuming one more unit of it, it is subjective and
depends on preferences; marginal benefit curve is the marginal benefit and the quantity consumed;
More we have of any good or service, smaller is its marginal benefits
-allocative efficiency is when the marginal benefit and cost intercept; productive efficiency is if we
produce at the lowest possible cost occurs on the PPF
-economic growth from 1) technological change 2) capital accumulation; to expand production
possibilities in the future, a nation must devote fewer resources to producing current consumption
goods and services and some resources to accumulating capital and developing new technologies.
-economic growth extends the curve to the right, with better equipment, being able to produce more
goods
-comparative advantage if the person can perform the activity at a lower opportunity cost than anyone
else
-a person who is more productive than others in several or even all activities has an absolute advantage
-absolute advantage involves comparing production per hour while comparative advantage compares
opportunity costs
-two economic coordination systems: 1)central economic planning, government economic planners
dont know peoples production possibilities and preferences, ends up wasting resources
2)decentralized coordination works best but 4 social institution needs: a)firm: hires factors of
production and organizes those factors to produce and sell goods and services b) markets: any
arrangement that enables buyers and sellers to get information and to do business with each other
c)property rights: social arrangements that govern the ownership, use, and disposal of anything that
people value->real property, financial property, intellectual property c)money: any commodity or token
that is generally acceptable as a means of payment
-Circular flow: only households and firms exist in this flow; households sell labour, land, capital,
entrepreneurship to the firm and firm returns wages, rent, interest, and profits; nothing is leaving, no
taxes and cant deposit.

Chapter 3
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