Scarcity our inability to get everything that we want Incentive a reward that encourages an action or a penalty that discourages one Prices act as incentives Microeconomics is the study of the choices that individuals and business make the way these choices interact in markets and the influence of governments Macroeconomics is the study of the performance the national economy and the global economy Goods and Services are the objects that people value and produce to satisfy wants Good are physical objects such as cell phones and automobiles Services are taste performed for people such as cell phone service and auto repair service What we produce varies across countries and changes over time production which are grouped into four categories land natural resources ex minerals oil gas coal water air forests and fish How we produce is described by the technologies and resources that we use The resources used ti produce goods and services are called factors of labor the work time and work effort that people devote to producing goods and services is called labor labor includes the physical and mental efforts of all the people who work on farms and construction sites and in factories shops and offices the quality of labor depends on human capital which is the knowledge and skill that people obtain from education on the job training and work experience capital the tools instruments machines buildings and other constructions that businesses use to produce goods and services is called capital Financial capital plays an important role in enabling business to borrow the funds that they use to buy physical capital entrepreneurship the human resource that organizes labor land and capital is called entrepreneurship For whom Who consumes the goods and services that are produced depends on the incomes that people earn People earn their incomes by selling the services of the factors of production they own Land earns rent Labor earns wages Capital earns interest Entrepreneurship earns profit Self Interest you make a choice in your self interest if you think that choice is the best one available for you All the choices that people make about how to use their time and other resources are made in the pursuit of self interest Social Interest an outcome is in the social interest if it is best for society as a whole Efficient economists use the word efficient to describe a situation that can t be improved upon Resource use is efficient if it is not possible to make someone better off without making someone else worse off If it is possible to make someone better off without making someone worse off society can be made better off and the situation is not efficient Tradeoff is an exchange giving up one thing to get something else Rational Choice is one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice Benefit the benefit of something is the gain or pleasure that it brings and is determined by preferences by what a person likes and dislikes and the intensity of those feelings Opportunity Cost is the highest valued alternative that must be given up to get it Margin you compare the benefits of something to it s cost Marginal Benefit the benefit that arises from an increase in an activity marginal cost the opportunity cost of an increase in an activity is called marginal cost if the marginal benefit from something exceeds its marginal cost then you do that something cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127
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