ECONOMICS 1
, Chapter 1: Introduction to Economics
Economy (oikonomos): ‘One who manages a household.’
Both economy and a household face many decisions.
The economic problem exists because there is never enough to supply everyone
with what they want to have.
Land: All natural resources of the earth, e.g. oil, iron, wood and fish.
Labor: The human effort both mental and physical that goes into production.
Capital: The equipment and structures used to produce goods and services, e.g.
factories and computers.
Scarcity: Society has limited resources and therefore cannot produce all goods
and services people wish to have.
Which makes management of resources very important.
Economics: The study of how society manages its scarce resources and
attempts to answer the three key questions.
1. What goods and services should be produced?
2. How should these goods and services be produced?
3. Who should get the goods and services produced?
Economists study how people make decisions, how people interact with one
another and analyze forces and trends that affect the economy as a whole.
The economy: All of the production and exchange activities that take place
every day.
Economic activity: How much buying and selling goes on in the economy over
a period of time.
The first four principles are based on individual decision making.
Principle 1: People Face Trade-offs
Making decisions requires trading off the benefits of one goal against those of
another.
Society faces many trade-offs, e.g. safety or food, clean environment or high
level of income and efficiency or equity.
Efficiency: Society is getting the most it can from its scarce resources.
Equity: The benefits from those resources are distributed fairly among society’s
members.
Efficiency refers to the size of the cake and equity to how it’s divided.
When the government tries to cut the economic cake into more equal slices, the
cake gets smaller, because people work less hard when hard work is rewarded
less.
1
, Chapter 1: Introduction to Economics
Economy (oikonomos): ‘One who manages a household.’
Both economy and a household face many decisions.
The economic problem exists because there is never enough to supply everyone
with what they want to have.
Land: All natural resources of the earth, e.g. oil, iron, wood and fish.
Labor: The human effort both mental and physical that goes into production.
Capital: The equipment and structures used to produce goods and services, e.g.
factories and computers.
Scarcity: Society has limited resources and therefore cannot produce all goods
and services people wish to have.
Which makes management of resources very important.
Economics: The study of how society manages its scarce resources and
attempts to answer the three key questions.
1. What goods and services should be produced?
2. How should these goods and services be produced?
3. Who should get the goods and services produced?
Economists study how people make decisions, how people interact with one
another and analyze forces and trends that affect the economy as a whole.
The economy: All of the production and exchange activities that take place
every day.
Economic activity: How much buying and selling goes on in the economy over
a period of time.
The first four principles are based on individual decision making.
Principle 1: People Face Trade-offs
Making decisions requires trading off the benefits of one goal against those of
another.
Society faces many trade-offs, e.g. safety or food, clean environment or high
level of income and efficiency or equity.
Efficiency: Society is getting the most it can from its scarce resources.
Equity: The benefits from those resources are distributed fairly among society’s
members.
Efficiency refers to the size of the cake and equity to how it’s divided.
When the government tries to cut the economic cake into more equal slices, the
cake gets smaller, because people work less hard when hard work is rewarded
less.
1
