Macroeconomics

labour

The work time and work effort that people devote to producing goods and services is labour.

The Economic Way of Thinking

Economists take human nature as given and view people as acting in their self-interest. Economists answer by emphasizing the role of institutions in creating incentives to behave in the social interest.

factors of production.

Factors of production are grouped into four categories: Land Labour Capital Entrepreneurship

Responding to Incentives

For any activity, if marginal benefit exceeds marginal cost, people have an incentive to do more of that activity. If marginal cost exceeds marginal benefit, people have an incentive to do less of that activity. Incentives are also the key to reconciling self-interest and the social interest.

Five topics that generate discussion and that illustrate tension between self-interest and social interest are

Globalization The information-age economy Global warming Natural resource depletion Economic instability

the big tradeoff

Government redistribution of income from the rich to the poor creates the big tradeoff—the tradeoff between equality and efficiency.

Two Big Economic Questions

How do choices end up determining what, how, and for whom goods and services get produced? When do choices made in the pursuit of self-interest also promote the social interest?

tradeoff examples

If we save more, we can buy more capital and increase our production. If we take less leisure time, we can educate and train ourselves to become more productive. If businesses produce less and devote resources to research and developing new technologies, they can produce more in the future.

The Big Question

Is it possible that when each one of us makes choices that are in our self-interest, it also turns out that these choices are also in the social interest?

Macroeconomics

Macroeconomics is the study of the performance of the national and global economies.

Microeconomics

Microeconomics is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments.

what economists use to test models

Natural experiments Statistical investigations Economic experiments

scarcity.

Our inability to satisfy all our wants is called

Choosing at the Margin

People make choices at the margin, which means that they evaluate the consequences of making incremental changes in the use of their resources. (increasing by one)

Three broad areas of economics are

Personal economic policy Business economic policy Government economic policy

land

The "gifts of nature" that we use to produce goods and services are land.

marginal benefit.

The benefit from pursuing an incremental increase (adding one additional unit of) in an activity is its marginal benefit.

Opportunity Cost

The highest-valued alternative that we give up to get something is the opportunity cost of the activity chosen

entrepreneurship

The human resource that organizes land, labour, and capital is entrepreneurship.

marginal cost.

The opportunity cost of pursuing an incremental increase (adding one additional unit of) in an activity is its marginal cost.

human capital

The quality of labour 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 are capital.

Economists distinguish between two types of statement:

What is—positive statements What ought to be—normative statements A positive statement can be tested by checking it against facts. A normative statement cannot be tested.

For Whom?

Who gets the goods and services depends on the incomes that people earn. Land earns rent. Labour earns wages. Capital earns interest. Entrepreneurship earns profit.

Choices and Tradeoffs

You can think about every choice as a tradeoff—an exchange—giving up one thing to get something else

Tradeoffs

arise when people choose how to spend their incomes, when governments choose how to spend their tax revenues, and when businesses choose what to produce.

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 and reconcile those choices. Economics divides in to main parts: Microeconomics Macroeconomics