1 WHAT IS ECONOMICS?
J
J J
TheJ BigJ Picture
J
Where J we J are J going: J
AfterJcompletingJChapterJ1,JtheJstudentJwillJhaveJaJgoodJsenseJforJtheJrangeJofJquestionsJthatJeco
nomicsJaddressesJandJwillJbeJonJtheJpathJtowardsJanJeconomicJwayJofJthinking.JTheJstudentsJwillJ
beginJtoJthinkJofJcostJasJaJforgoneJalternative—anJopportunityJcost—
andJalsoJaboutJmakingJchoicesJbyJbalancingJmarginalJcostsJandJmarginalJbenefits.
ChapterJ2JreinforcesJtheJcentralJthemesJofJChapterJ1JbyJlayingJoutJaJcoreJeconomicJmodel,JtheJpro
ductionJpossibilitiesJfrontierJ(PPF),JandJusingJitJtoJillustrateJtheJconceptsJofJtradeoffJandJopportuni
tyJcost.JChapterJ2JalsoJprovidesJaJdeeperJexplanation,JagainJwithJaJmodel,JofJtheJconceptsJofJmargi
nalJcostJandJmarginalJbenefit,JbeginningJwithJtheJconceptJofJefficiency,JandJconcludingJwithJaJrevi
ewJofJtheJsourceJofJtheJgainsJfromJspecializationJandJexchange.
N e w J inJ th e J N i n t h J E d i t i o n J
ThisJchapterJisJstreamlinedJandJmoreJquicklyJaddressesJbasicJeconomicJthought.JItJisJnotJoneJtoJgl
ossJoverJasJitJlaysJdownJanJimportantJfoundationJthatJcanJbeJdrawnJfromJasJyouJmoveJthroughJmor
eJspecificJapplicationsJlater.JThisJeditionJpresentsJonlyJfourJissuesJthatJjuxtaposeJprivateJinterestJan
dJsocialJinterest:Jglobalization;JtheJinformation-
ageJeconomy;JglobalJwarming;JandJeconomicJinstabilityJ(andJtheJpotentialJendJtoJtheJ“GreatJMode
ration.JStudentsJrelateJwellJtoJtheJsectionJonJself-
interestJandJsocialJinterest,JwhichJintroducesJissuesJofJefficiencyJandJfairnessJandJisJgreatJforJclassJ
discussion.JEconomicsJinJtheJNewsJcoversJcurrentJissuesJincludingJFacebookJandJMarkJZuckerber
g’sJvisionJtoJhaveJtheJInternetJavailableJtoJtheJwholeJworld..
CopyrightJ©J2016JPearsonJCanadaJIn
c.
,2 CHAPTE R J 1
LectureJ NotesJ
WhatJIsJEconomics?
I. DefinitionJofJEconomics
• EconomicJquestionsJariseJbecauseJweJalwaysJwantJmoreJthanJweJcanJget,JsoJweJfaceJscarcity,JtheJinabilit
yJtoJsatisfyJallJourJwants.JEveryoneJfacesJscarcityJbecauseJnoJoneJcanJsatisfyJallJofJhisJorJherJwants.
• ScarcityJforcesJusJtoJmakeJchoicesJoverJtheJavailableJalternative.JTheJchoicesJweJmakeJdependJon
incentives,JaJrewardJthatJencouragesJaJchoiceJorJaJpenaltyJthatJdiscouragesJaJchoice.
BillJGatesJandJWarrenJBuffetJareJamongJtheJwealthiestJbusinessmen.JDoJtheyJfaceJscarcity?JAccordingJtoJTheJWall
JStreetJJournal,JbothJmenJareJardentJbridgeJplayers,JyetJtheyJhaveJneverJwonJoneJofJtheJmanyJnationalJbridgeJtourn
amentsJtheyJhaveJenteredJasJaJteam.JTheyJcanJeasilyJaffordJtheJbestJbridgeJcoachesJinJtheJworld,JbutJtheyJdon’tJalloc
ateJenoughJtimeJtoJpracticingJasJmuchJasJtheyJwouldJneedJtoJwin.JTheyJfaceJscarcityJ(ofJtime)JandJmustJchooseJhow
JtoJspendJtheirJtime.
Economics
• EconomicsJisJtheJsocialJscienceJthatJstudiesJtheJchoicesJthatJindividuals,Jbusinesses,Jgovernments,Jan
dJentireJsocietiesJmakeJwhenJtheyJcopeJwithJscarcityJandJtheJincentivesJthatJinfluenceJandJreconcileJth
oseJchoices.
• EconomistsJworkJtoJunderstandJwhenJtheJpursuitJofJself-interestJadvancesJtheJsocialJinterest
• EconomicsJisJdividedJintoJmicroeconomicsJandJmacroeconomics:
• MicroeconomicsJisJtheJstudyJofJtheJchoicesJthatJindividualsJandJbusinessesJmake,JtheJwayJthes
eJchoicesJinteractJinJmarkets,JandJtheJinfluenceJofJgovernments.
• MacroeconomicsJisJtheJstudyJofJtheJperformanceJofJtheJnationalJeconomyJandJtheJgloba
lJeconomics.
OnJtheJfirstJdayJdoJaJ“popJquiz.”JHaveJyourJstudentsJwriteJonJpaperJtheJanswerJtoJ“WhatJisJEconomics?”JReassureJ
themJthatJthisJisJtheirJopinionJsinceJitJisJtheJfirstJday.JYouJwillJfindJmostJofJtheJanswersJfocusedJaroundJmoneyJand
/orJbusiness.JStressJthatJEconomicsJisJaJsocialJscience,JaJstudyJofJhumanJbehaviourJgivenJtheJscarcityJproblem.JAll
JtooJoftenJfirst-timeJstudentsJ(especiallyJbusinessJstudents)JthinkJthatJEconomicsJisJjustJaboutJmakingJmoney.
Certainly,JtheJdisciplineJcanJandJdoesJoutlineJreasonsJwhyJworkersJworkJlongerJhoursJtoJincreaseJtheirJwageJearnin
gs,JorJwhyJfirmsJseekJprofitJasJtheirJincentive.JButJEconomicsJalsoJexplainsJwhyJaJterminallyJillJcancerJpatientJmigh
tJoptJforJpainJmedicationJasJopposedJtoJcontinuedJchemotherapy/radiation,JorJwhyJsomeoneJnoJlongerJinJtheJworkfo
rceJwantsJtoJgoJtoJcollegeJandJattainJaJBachelor’sJdegree,JinJtheirJsheerJpleasureJofJlearningJandJunderstanding.JStre
ssingJtheJsocialJpartJofJourJscienceJnowJwillJhelpJlaterJwhenJrelatingJdetailsJtoJtheJoverallJbiggerJpictureJ(especially
JwhenJtimeJlaterJinJtheJsemesterJseemsJscarce,JnoJpunJintended!).
TheJdefinitionJinJtheJtext:J“EconomicsJisJtheJsocialJscienceJthatJstudiesJtheJchoicesJthatJindividuals,Jbusinesses,Jg
overnments,JandJsocietiesJmakeJasJtheyJcopeJwithJscarcityJandJtheJincentivesJthatJinfluenceJandJreconcileJtheseJcho
ices,”JisJaJmodernJlanguageJversionJofJLionelJRobbinsJfamousJdefinition,J“EconomicsJisJtheJscienceJwhichJstudies
JhumanJbehaviourJasJaJrelationshipJbetweenJendsJandJscarceJmeansJthatJhaveJalternativeJuses.”
OtherJdefinitionsJincludeJthoseJofJKeynesJandJMarshall:
JohnJMaynardJKeynes:J“TheJtheoryJofJeconomicsJdoesJnotJfurnishJaJbodyJofJsettledJconclusionsJimmediately
JapplicableJtoJpolicy.JItJisJaJmethodJratherJthanJaJdoctrine,JanJapparatusJofJtheJmind,JaJtechniqueJofJthinking,JwhichJ
helpsJitJpossessorsJtoJdrawJcorrectJconclusions.”
CopyrightJ©J2016JPearsonJCanadaJIn
c.
, WHAT J IS J ECON JOM JICS 3
?J
AlfredJMarshall:J“EconomicsJisJaJstudyJofJmankindJinJtheJordinaryJbusinessJofJlife;JitJexaminesJthatJpartJo
fJindividualJandJsocialJactionJwhichJisJmostJcloselyJconnectedJwithJtheJattainmentJandJwithJtheJuseJofJtheJmater
ialJrequisitesJofJwellbeing.”
II. TwoJBigJEconomicJQuestions
HowJdoJchoicesJwindJupJdeterminingJwhat,Jhow,JandJforJwhomJgoodsJandJservicesJareJproduc
ed?
What,JHowJandJForJWhom?
• GoodsJandJservicesJareJtheJobjectsJthatJpeopleJvalueJandJproduceJtoJsatisfyJhumanJwants.JWhatJw
eJproduceJchangesJoverJtime—
todayJweJproduceJmoreJDVDsJandJfewerJvideoJtapesJthanJfiveJyearsJago.
• GoodsJandJservicesJareJproducedJusingJproductiveJresourcesJcalledJfactorsJofJproduction.JTheseJareJl
andJ(theJ“giftsJofJnature”,JnaturalJresources),JlabourJ(theJworkJtimeJandJworkJeffortJpeopleJdevoteJtoJpr
oduction),JcapitalJ(theJtools,Jinstruments,Jmachines,Jbuildings,JandJotherJconstructionsJusedJtoJproduceJg
oodsJandJservices),JandJentrepreneurshipJ(theJhumanJresourceJthatJorganizesJlabour,Jland,JandJcapital).
• TheJqualityJofJlabourJdependsJonJhumanJcapital,JwhichJisJtheJknowledgeJandJskillJthatJpeopleJobtai
nJfromJeducation,JworkJexperience,JandJon-the-jobJtraining.
• PeopleJearnJtheirJincomesJbyJsellingJtheJservicesJofJtheJfactorsJofJproductionJtheyJown:JLandJearnsJrent
,JlabourJearnsJwages,JcapitalJearnsJinterest,JandJentrepreneurshipJearnsJprofit.
DoJChoicesJMadeJinJtheJPursuitJofJSelf-InterestJalsoJPromoteJtheJSocialJInterest?
• YouJmakeJaJchoiceJinJyourJself-interestJifJyouJthinkJthatJchoiceJisJtheJbestJoneJavailableJforJyou.
• AnJoutcomeJisJinJtheJsocialJinterestJifJitJisJbestJforJsocietyJasJaJwhole.
• CouldJitJbeJpossibleJthatJwhenJeachJofJusJmakesJchoicesJinJourJself-
interest,JtheseJchoicesJareJinJtheJsocialJinterest?
TheJTwoJBigJEconomicJQuestionsJ Don’tJskipJtheJquestions.JOpenJyourJstudents’JeyesJtoJeconomicJinJtheJworldJar
oundJthem.JAskJthemJtoJbringJaJnewspaperJtoJclassJandJtoJidentifyJheadlinesJthatJdealJwithJstoriesJaboutJWhat,JHo
w,JandJForJWhom.JUseJEconomicsJinJtheJNewsJTodayJonJyourJMyEconLabJWebJsiteJforJaJcurrentJnewsJitemJandJf
orJanJarchiveJofJpastJitemsJ(withJquestions).JPoseJquestionsJbutJholdJoffJonJtheJanswersJlettingJthemJknowJthatJ“weJ
canJhaveJaJmuchJmoreJfruitfulJdiscussionJwhenJourJtoolboxJisJfull.”JRemindJthemJthatJthisJcourseJisJaboutJlearning
JsimpleJeconomicJmodelsJthatJprovideJtoolsJtoJseekJanswersJtoJcomplexJissues.
StudentsJ(andJothers!)JoftenJtakeJtheJanswersJtoJtheJwhat,Jhow,JandJforJwhomJquestionsJforJgranted.JForJinstance,J
mostJofJtheJtimeJweJdoJnotJbotherJtoJwonderJ“HowJdoesJourJeconomyJdetermineJhowJmanyJlightJbulbs,Jautomobil
es,JandJpizzasJtoJproduce?”J(what),JorJ“WhyJdoesJharvestingJwheatJfromJaJplotJofJlandJinJIndiaJoccurJwithJhundred
sJofJlabourersJtoilingJwithJoxenJpullingJthreshingJmachines,JwhileJinJCanada,JaJsingleJfarmerJlisteningJtoJaJGarthJB
rooksJCDJandJsittingJinJanJair-
conditionedJcabJofJaJ$500,000JmachineJharvestsJtheJsameJquantityJofJwheatJfromJtheJsameJsizedJplotJofJland?”J(ho
w),JorJ“WhyJisJtheJannualJincomeJofJanJinspiringJandJeffectiveJgradeJschoolJteacherJmuchJlessJthanJthatJofJanJaver
ageJmajor-
leagueJbaseballJplayer?”J(forJwhom).JExplainingJtheJanswersJtoJtheseJtypesJofJquestionsJandJdeterminingJwhetherJt
heJanswersJareJinJtheJsocialJinterestJisJaJmajorJpartJofJmicroeconomics.
FigureJ1.1JinJtheJtextbookJ“TrendsJinJWhatJWeJProduce”JtiesJinJnicelyJwithJChapterJ2’sJdiscussionJonJtheJPPF.
FigureJ1.1JalsoJlinksJtheJthreeJquestionsJofJwhat,Jhow,JandJforJwhomJnicelyJtoJtheJcomponentJpartsJofJthose
CopyrightJ©J2016JPearsonJCanadaJIn
c.
, 4 CHAPTE R J 1
questions:JgoodsJandJservices,JfactorsJofJproductionJ(land,Jlabour,Jcapital,Jentrepreneurship),JandJincomesJthatJfacto
rsJofJproductionJearnJ(rent,Jwages,Jinterest,JandJprofit).
• WeJcanJexamineJwhetherJtheJself-interestedJchoicesJserveJtheJsocialJinterestJforJaJvarietyJtopics:
• Globalization:JBuyingJanJiPodJallowsJworkersJoverseasJtoJearnJaJwageJandJprovideJforJfamily
• Information-
AgeJMonopolies:JAnJ absenceJofJcompetitionJleadsJtoJpricesJfarJaboveJtheJc
ostJofJproduction
• ClimateJChange:JCarbonJdioxideJemissionsJledJtoJhigherJglobalJtemperaturesJandJclimateJchange
• EconomicJinstability:JVolatilityJandJriskJinJfinancialJmarketsJleadsJtoJfewerJloansJandJlessJlendin
gJavailable
III. EconomicJWayJofJThinking
ScarcityJrequiresJchoicesJandJchoicesJcreateJtradeoffs.
WhatJisJtheJdifferenceJbetweenJscarcityJandJpoverty?JAskJtheJstudentsJwhyJtheyJhaven’tJyetJattainedJallJofJtheirJpe
rsonalJgoals.JOneJreasonJwillJbeJthatJtheyJlackJsufficientJmoney.JAskJthemJifJtheyJcouldJattainJallJofJtheirJgoalsJifJth
eyJwereJasJrichJasJBillJGates.JTheyJquicklyJrealizeJthatJtimeJisJaJbigJconstraint—
andJtheJgreatJleveler:JweJallJhaveJonlyJ24JhoursJinJaJday.JTheyJhaveJstumbledJonJtheJfactJthatJscarcity,JwhichJevenJ
BillJGatesJfaces,JisJnotJpoverty.
AJChoiceJisJaJTradeoff
• AJtradeoffJisJanJexchange—givingJupJoneJthingJtoJgetJanother.
• WhateverJchoiceJyouJmake,JyouJcouldJhaveJchosenJsomethingJelse.
VirtuallyJeveryJchoiceJthatJcanJbeJthoughtJofJinvolvesJaJtradeoff.JPresentingJaJfewJofJtheJfollowingJasJexamplesJca
nJhelpJyourJclassJbetterJappreciateJthisJkeyJpoint:
• ConsumptionJandJsavings:JIfJsomeoneJdecidesJtoJsaveJmoreJofJhisJorJherJincome,JsavingsJcanJbeJfunnele
dJthroughJtheJfinancialJsystemJtoJfinanceJbusinessesJnewJcapitalJpurchases.JAsJaJsociety,JweJtradeJoffJcurr
entJconsumptionJforJeconomicJgrowthJandJhigherJfutureJconsumption.
• EducationJandJtraining:JAJstudentJremainingJinJschoolJforJanotherJtwoJyearsJtoJcompleteJaJdegreeJwi
llJneedJtoJforgoJaJsignificantJamountJofJleisureJtime.JButJbyJdoingJso,JheJorJsheJwillJbeJbetterJeducatedJa
ndJwillJbeJmoreJproductive.JAsJaJsociety,JweJtradeJoffJcurrentJproductionJforJgreaterJfutureJproduction.
• ResearchJandJdevelopment:JFactoryJautomationJbringsJgreaterJproductivityJinJtheJfuture,JbutJmean
sJsmallerJcurrentJproduction.JAsJaJsociety,JweJtradeJoffJcurrentJproductionJforJgreaterJfutureJproductio
n.
MakingJaJRationalJChoice
• AJrationalJchoiceJisJoneJthatJcomparesJcostsJandJbenefitsJandJachievesJtheJgreatestJbenefitJoverJcostJfo
rJtheJpersonJmakingJtheJchoice.
• ButJhowJdoJpeopleJchooseJrationally?JWhyJdoJmoreJpeopleJchooseJanJiPodJratherJthanJaJZune?JWhyJha
sJtheJCanadianJgovernmentJchosenJtoJbuildJaJnationalJhighwayJsystemJandJnotJaJnationalJhigh-
speedJrailJsystem?JTheJanswersJturnJonJcomparingJbenefitsJandJcosts.
Benefit:JWhatJyouJGain
• TheJbenefitJofJsomethingJisJtheJgainJorJpleasureJthatJitJbringsJandJisJdeterminedJbyJpreferences—
byJwhatJaJpersonJlikesJandJdislikesJandJtheJintensityJofJthoseJfeelings.
• SomeJbenefitsJareJlargeJandJeasyJtoJidentify,JsuchJasJtheJbenefitJthatJyouJgetJfromJbeingJinJschool.JMuchJo
fJthatJbenefitJisJtheJadditionalJgoodsJandJservicesJthatJyouJwillJbeJableJtoJenjoyJwithJtheJboostJtoJyourJearni
ngJpowerJwhenJyouJgraduate.
CopyrightJ©J2016JPearsonJCanadaJIn
c.
J
J J
TheJ BigJ Picture
J
Where J we J are J going: J
AfterJcompletingJChapterJ1,JtheJstudentJwillJhaveJaJgoodJsenseJforJtheJrangeJofJquestionsJthatJeco
nomicsJaddressesJandJwillJbeJonJtheJpathJtowardsJanJeconomicJwayJofJthinking.JTheJstudentsJwillJ
beginJtoJthinkJofJcostJasJaJforgoneJalternative—anJopportunityJcost—
andJalsoJaboutJmakingJchoicesJbyJbalancingJmarginalJcostsJandJmarginalJbenefits.
ChapterJ2JreinforcesJtheJcentralJthemesJofJChapterJ1JbyJlayingJoutJaJcoreJeconomicJmodel,JtheJpro
ductionJpossibilitiesJfrontierJ(PPF),JandJusingJitJtoJillustrateJtheJconceptsJofJtradeoffJandJopportuni
tyJcost.JChapterJ2JalsoJprovidesJaJdeeperJexplanation,JagainJwithJaJmodel,JofJtheJconceptsJofJmargi
nalJcostJandJmarginalJbenefit,JbeginningJwithJtheJconceptJofJefficiency,JandJconcludingJwithJaJrevi
ewJofJtheJsourceJofJtheJgainsJfromJspecializationJandJexchange.
N e w J inJ th e J N i n t h J E d i t i o n J
ThisJchapterJisJstreamlinedJandJmoreJquicklyJaddressesJbasicJeconomicJthought.JItJisJnotJoneJtoJgl
ossJoverJasJitJlaysJdownJanJimportantJfoundationJthatJcanJbeJdrawnJfromJasJyouJmoveJthroughJmor
eJspecificJapplicationsJlater.JThisJeditionJpresentsJonlyJfourJissuesJthatJjuxtaposeJprivateJinterestJan
dJsocialJinterest:Jglobalization;JtheJinformation-
ageJeconomy;JglobalJwarming;JandJeconomicJinstabilityJ(andJtheJpotentialJendJtoJtheJ“GreatJMode
ration.JStudentsJrelateJwellJtoJtheJsectionJonJself-
interestJandJsocialJinterest,JwhichJintroducesJissuesJofJefficiencyJandJfairnessJandJisJgreatJforJclassJ
discussion.JEconomicsJinJtheJNewsJcoversJcurrentJissuesJincludingJFacebookJandJMarkJZuckerber
g’sJvisionJtoJhaveJtheJInternetJavailableJtoJtheJwholeJworld..
CopyrightJ©J2016JPearsonJCanadaJIn
c.
,2 CHAPTE R J 1
LectureJ NotesJ
WhatJIsJEconomics?
I. DefinitionJofJEconomics
• EconomicJquestionsJariseJbecauseJweJalwaysJwantJmoreJthanJweJcanJget,JsoJweJfaceJscarcity,JtheJinabilit
yJtoJsatisfyJallJourJwants.JEveryoneJfacesJscarcityJbecauseJnoJoneJcanJsatisfyJallJofJhisJorJherJwants.
• ScarcityJforcesJusJtoJmakeJchoicesJoverJtheJavailableJalternative.JTheJchoicesJweJmakeJdependJon
incentives,JaJrewardJthatJencouragesJaJchoiceJorJaJpenaltyJthatJdiscouragesJaJchoice.
BillJGatesJandJWarrenJBuffetJareJamongJtheJwealthiestJbusinessmen.JDoJtheyJfaceJscarcity?JAccordingJtoJTheJWall
JStreetJJournal,JbothJmenJareJardentJbridgeJplayers,JyetJtheyJhaveJneverJwonJoneJofJtheJmanyJnationalJbridgeJtourn
amentsJtheyJhaveJenteredJasJaJteam.JTheyJcanJeasilyJaffordJtheJbestJbridgeJcoachesJinJtheJworld,JbutJtheyJdon’tJalloc
ateJenoughJtimeJtoJpracticingJasJmuchJasJtheyJwouldJneedJtoJwin.JTheyJfaceJscarcityJ(ofJtime)JandJmustJchooseJhow
JtoJspendJtheirJtime.
Economics
• EconomicsJisJtheJsocialJscienceJthatJstudiesJtheJchoicesJthatJindividuals,Jbusinesses,Jgovernments,Jan
dJentireJsocietiesJmakeJwhenJtheyJcopeJwithJscarcityJandJtheJincentivesJthatJinfluenceJandJreconcileJth
oseJchoices.
• EconomistsJworkJtoJunderstandJwhenJtheJpursuitJofJself-interestJadvancesJtheJsocialJinterest
• EconomicsJisJdividedJintoJmicroeconomicsJandJmacroeconomics:
• MicroeconomicsJisJtheJstudyJofJtheJchoicesJthatJindividualsJandJbusinessesJmake,JtheJwayJthes
eJchoicesJinteractJinJmarkets,JandJtheJinfluenceJofJgovernments.
• MacroeconomicsJisJtheJstudyJofJtheJperformanceJofJtheJnationalJeconomyJandJtheJgloba
lJeconomics.
OnJtheJfirstJdayJdoJaJ“popJquiz.”JHaveJyourJstudentsJwriteJonJpaperJtheJanswerJtoJ“WhatJisJEconomics?”JReassureJ
themJthatJthisJisJtheirJopinionJsinceJitJisJtheJfirstJday.JYouJwillJfindJmostJofJtheJanswersJfocusedJaroundJmoneyJand
/orJbusiness.JStressJthatJEconomicsJisJaJsocialJscience,JaJstudyJofJhumanJbehaviourJgivenJtheJscarcityJproblem.JAll
JtooJoftenJfirst-timeJstudentsJ(especiallyJbusinessJstudents)JthinkJthatJEconomicsJisJjustJaboutJmakingJmoney.
Certainly,JtheJdisciplineJcanJandJdoesJoutlineJreasonsJwhyJworkersJworkJlongerJhoursJtoJincreaseJtheirJwageJearnin
gs,JorJwhyJfirmsJseekJprofitJasJtheirJincentive.JButJEconomicsJalsoJexplainsJwhyJaJterminallyJillJcancerJpatientJmigh
tJoptJforJpainJmedicationJasJopposedJtoJcontinuedJchemotherapy/radiation,JorJwhyJsomeoneJnoJlongerJinJtheJworkfo
rceJwantsJtoJgoJtoJcollegeJandJattainJaJBachelor’sJdegree,JinJtheirJsheerJpleasureJofJlearningJandJunderstanding.JStre
ssingJtheJsocialJpartJofJourJscienceJnowJwillJhelpJlaterJwhenJrelatingJdetailsJtoJtheJoverallJbiggerJpictureJ(especially
JwhenJtimeJlaterJinJtheJsemesterJseemsJscarce,JnoJpunJintended!).
TheJdefinitionJinJtheJtext:J“EconomicsJisJtheJsocialJscienceJthatJstudiesJtheJchoicesJthatJindividuals,Jbusinesses,Jg
overnments,JandJsocietiesJmakeJasJtheyJcopeJwithJscarcityJandJtheJincentivesJthatJinfluenceJandJreconcileJtheseJcho
ices,”JisJaJmodernJlanguageJversionJofJLionelJRobbinsJfamousJdefinition,J“EconomicsJisJtheJscienceJwhichJstudies
JhumanJbehaviourJasJaJrelationshipJbetweenJendsJandJscarceJmeansJthatJhaveJalternativeJuses.”
OtherJdefinitionsJincludeJthoseJofJKeynesJandJMarshall:
JohnJMaynardJKeynes:J“TheJtheoryJofJeconomicsJdoesJnotJfurnishJaJbodyJofJsettledJconclusionsJimmediately
JapplicableJtoJpolicy.JItJisJaJmethodJratherJthanJaJdoctrine,JanJapparatusJofJtheJmind,JaJtechniqueJofJthinking,JwhichJ
helpsJitJpossessorsJtoJdrawJcorrectJconclusions.”
CopyrightJ©J2016JPearsonJCanadaJIn
c.
, WHAT J IS J ECON JOM JICS 3
?J
AlfredJMarshall:J“EconomicsJisJaJstudyJofJmankindJinJtheJordinaryJbusinessJofJlife;JitJexaminesJthatJpartJo
fJindividualJandJsocialJactionJwhichJisJmostJcloselyJconnectedJwithJtheJattainmentJandJwithJtheJuseJofJtheJmater
ialJrequisitesJofJwellbeing.”
II. TwoJBigJEconomicJQuestions
HowJdoJchoicesJwindJupJdeterminingJwhat,Jhow,JandJforJwhomJgoodsJandJservicesJareJproduc
ed?
What,JHowJandJForJWhom?
• GoodsJandJservicesJareJtheJobjectsJthatJpeopleJvalueJandJproduceJtoJsatisfyJhumanJwants.JWhatJw
eJproduceJchangesJoverJtime—
todayJweJproduceJmoreJDVDsJandJfewerJvideoJtapesJthanJfiveJyearsJago.
• GoodsJandJservicesJareJproducedJusingJproductiveJresourcesJcalledJfactorsJofJproduction.JTheseJareJl
andJ(theJ“giftsJofJnature”,JnaturalJresources),JlabourJ(theJworkJtimeJandJworkJeffortJpeopleJdevoteJtoJpr
oduction),JcapitalJ(theJtools,Jinstruments,Jmachines,Jbuildings,JandJotherJconstructionsJusedJtoJproduceJg
oodsJandJservices),JandJentrepreneurshipJ(theJhumanJresourceJthatJorganizesJlabour,Jland,JandJcapital).
• TheJqualityJofJlabourJdependsJonJhumanJcapital,JwhichJisJtheJknowledgeJandJskillJthatJpeopleJobtai
nJfromJeducation,JworkJexperience,JandJon-the-jobJtraining.
• PeopleJearnJtheirJincomesJbyJsellingJtheJservicesJofJtheJfactorsJofJproductionJtheyJown:JLandJearnsJrent
,JlabourJearnsJwages,JcapitalJearnsJinterest,JandJentrepreneurshipJearnsJprofit.
DoJChoicesJMadeJinJtheJPursuitJofJSelf-InterestJalsoJPromoteJtheJSocialJInterest?
• YouJmakeJaJchoiceJinJyourJself-interestJifJyouJthinkJthatJchoiceJisJtheJbestJoneJavailableJforJyou.
• AnJoutcomeJisJinJtheJsocialJinterestJifJitJisJbestJforJsocietyJasJaJwhole.
• CouldJitJbeJpossibleJthatJwhenJeachJofJusJmakesJchoicesJinJourJself-
interest,JtheseJchoicesJareJinJtheJsocialJinterest?
TheJTwoJBigJEconomicJQuestionsJ Don’tJskipJtheJquestions.JOpenJyourJstudents’JeyesJtoJeconomicJinJtheJworldJar
oundJthem.JAskJthemJtoJbringJaJnewspaperJtoJclassJandJtoJidentifyJheadlinesJthatJdealJwithJstoriesJaboutJWhat,JHo
w,JandJForJWhom.JUseJEconomicsJinJtheJNewsJTodayJonJyourJMyEconLabJWebJsiteJforJaJcurrentJnewsJitemJandJf
orJanJarchiveJofJpastJitemsJ(withJquestions).JPoseJquestionsJbutJholdJoffJonJtheJanswersJlettingJthemJknowJthatJ“weJ
canJhaveJaJmuchJmoreJfruitfulJdiscussionJwhenJourJtoolboxJisJfull.”JRemindJthemJthatJthisJcourseJisJaboutJlearning
JsimpleJeconomicJmodelsJthatJprovideJtoolsJtoJseekJanswersJtoJcomplexJissues.
StudentsJ(andJothers!)JoftenJtakeJtheJanswersJtoJtheJwhat,Jhow,JandJforJwhomJquestionsJforJgranted.JForJinstance,J
mostJofJtheJtimeJweJdoJnotJbotherJtoJwonderJ“HowJdoesJourJeconomyJdetermineJhowJmanyJlightJbulbs,Jautomobil
es,JandJpizzasJtoJproduce?”J(what),JorJ“WhyJdoesJharvestingJwheatJfromJaJplotJofJlandJinJIndiaJoccurJwithJhundred
sJofJlabourersJtoilingJwithJoxenJpullingJthreshingJmachines,JwhileJinJCanada,JaJsingleJfarmerJlisteningJtoJaJGarthJB
rooksJCDJandJsittingJinJanJair-
conditionedJcabJofJaJ$500,000JmachineJharvestsJtheJsameJquantityJofJwheatJfromJtheJsameJsizedJplotJofJland?”J(ho
w),JorJ“WhyJisJtheJannualJincomeJofJanJinspiringJandJeffectiveJgradeJschoolJteacherJmuchJlessJthanJthatJofJanJaver
ageJmajor-
leagueJbaseballJplayer?”J(forJwhom).JExplainingJtheJanswersJtoJtheseJtypesJofJquestionsJandJdeterminingJwhetherJt
heJanswersJareJinJtheJsocialJinterestJisJaJmajorJpartJofJmicroeconomics.
FigureJ1.1JinJtheJtextbookJ“TrendsJinJWhatJWeJProduce”JtiesJinJnicelyJwithJChapterJ2’sJdiscussionJonJtheJPPF.
FigureJ1.1JalsoJlinksJtheJthreeJquestionsJofJwhat,Jhow,JandJforJwhomJnicelyJtoJtheJcomponentJpartsJofJthose
CopyrightJ©J2016JPearsonJCanadaJIn
c.
, 4 CHAPTE R J 1
questions:JgoodsJandJservices,JfactorsJofJproductionJ(land,Jlabour,Jcapital,Jentrepreneurship),JandJincomesJthatJfacto
rsJofJproductionJearnJ(rent,Jwages,Jinterest,JandJprofit).
• WeJcanJexamineJwhetherJtheJself-interestedJchoicesJserveJtheJsocialJinterestJforJaJvarietyJtopics:
• Globalization:JBuyingJanJiPodJallowsJworkersJoverseasJtoJearnJaJwageJandJprovideJforJfamily
• Information-
AgeJMonopolies:JAnJ absenceJofJcompetitionJleadsJtoJpricesJfarJaboveJtheJc
ostJofJproduction
• ClimateJChange:JCarbonJdioxideJemissionsJledJtoJhigherJglobalJtemperaturesJandJclimateJchange
• EconomicJinstability:JVolatilityJandJriskJinJfinancialJmarketsJleadsJtoJfewerJloansJandJlessJlendin
gJavailable
III. EconomicJWayJofJThinking
ScarcityJrequiresJchoicesJandJchoicesJcreateJtradeoffs.
WhatJisJtheJdifferenceJbetweenJscarcityJandJpoverty?JAskJtheJstudentsJwhyJtheyJhaven’tJyetJattainedJallJofJtheirJpe
rsonalJgoals.JOneJreasonJwillJbeJthatJtheyJlackJsufficientJmoney.JAskJthemJifJtheyJcouldJattainJallJofJtheirJgoalsJifJth
eyJwereJasJrichJasJBillJGates.JTheyJquicklyJrealizeJthatJtimeJisJaJbigJconstraint—
andJtheJgreatJleveler:JweJallJhaveJonlyJ24JhoursJinJaJday.JTheyJhaveJstumbledJonJtheJfactJthatJscarcity,JwhichJevenJ
BillJGatesJfaces,JisJnotJpoverty.
AJChoiceJisJaJTradeoff
• AJtradeoffJisJanJexchange—givingJupJoneJthingJtoJgetJanother.
• WhateverJchoiceJyouJmake,JyouJcouldJhaveJchosenJsomethingJelse.
VirtuallyJeveryJchoiceJthatJcanJbeJthoughtJofJinvolvesJaJtradeoff.JPresentingJaJfewJofJtheJfollowingJasJexamplesJca
nJhelpJyourJclassJbetterJappreciateJthisJkeyJpoint:
• ConsumptionJandJsavings:JIfJsomeoneJdecidesJtoJsaveJmoreJofJhisJorJherJincome,JsavingsJcanJbeJfunnele
dJthroughJtheJfinancialJsystemJtoJfinanceJbusinessesJnewJcapitalJpurchases.JAsJaJsociety,JweJtradeJoffJcurr
entJconsumptionJforJeconomicJgrowthJandJhigherJfutureJconsumption.
• EducationJandJtraining:JAJstudentJremainingJinJschoolJforJanotherJtwoJyearsJtoJcompleteJaJdegreeJwi
llJneedJtoJforgoJaJsignificantJamountJofJleisureJtime.JButJbyJdoingJso,JheJorJsheJwillJbeJbetterJeducatedJa
ndJwillJbeJmoreJproductive.JAsJaJsociety,JweJtradeJoffJcurrentJproductionJforJgreaterJfutureJproduction.
• ResearchJandJdevelopment:JFactoryJautomationJbringsJgreaterJproductivityJinJtheJfuture,JbutJmean
sJsmallerJcurrentJproduction.JAsJaJsociety,JweJtradeJoffJcurrentJproductionJforJgreaterJfutureJproductio
n.
MakingJaJRationalJChoice
• AJrationalJchoiceJisJoneJthatJcomparesJcostsJandJbenefitsJandJachievesJtheJgreatestJbenefitJoverJcostJfo
rJtheJpersonJmakingJtheJchoice.
• ButJhowJdoJpeopleJchooseJrationally?JWhyJdoJmoreJpeopleJchooseJanJiPodJratherJthanJaJZune?JWhyJha
sJtheJCanadianJgovernmentJchosenJtoJbuildJaJnationalJhighwayJsystemJandJnotJaJnationalJhigh-
speedJrailJsystem?JTheJanswersJturnJonJcomparingJbenefitsJandJcosts.
Benefit:JWhatJyouJGain
• TheJbenefitJofJsomethingJisJtheJgainJorJpleasureJthatJitJbringsJandJisJdeterminedJbyJpreferences—
byJwhatJaJpersonJlikesJandJdislikesJandJtheJintensityJofJthoseJfeelings.
• SomeJbenefitsJareJlargeJandJeasyJtoJidentify,JsuchJasJtheJbenefitJthatJyouJgetJfromJbeingJinJschool.JMuchJo
fJthatJbenefitJisJtheJadditionalJgoodsJandJservicesJthatJyouJwillJbeJableJtoJenjoyJwithJtheJboostJtoJyourJearni
ngJpowerJwhenJyouJgraduate.
CopyrightJ©J2016JPearsonJCanadaJIn
c.
