Section 1 :WHAT IS ECONOMICS?

Definition of Economics

o Economics is the social science that studies the

choices that individuals, businesses, governments, and
societies make as they cope with scarcity and the
incentives that influence and reconcile those choices.
Note: An incentive is a reward that encourages an action or a penalty that discourages an action.
Economics divides into two main parts:

o Macroeconomics is the study of the performance of the

national and global economies.Ex: Why is the unemployment
rate in Egypt so high?

o Microeconomics is the study of choices made by

individuals and businesses, and the influence of
government on those choices.Ex: Why are people buying
more e-books and fewer hard copy books?
 First big Economic Question
How do choices end up determining what, how, and for
>

?whom goods and services get produced

Goods and services are the objects that people value and
.produce to satisfy human wants

? A-What to produce
– Agriculture accounts for less than 1% of total U.S.
production, manufactured goods for 22% & services for
77%.
– In China, agriculture accounts for 11% of total production,
manufactured goods for 49 %, and services for 40% .
?B-How to produce
o Goods and services are produced by using productive
resources that economists call factors of production.

Land “The “gifts of nature” that we use to produce goods and services “

Capital “The tools, instruments, machines, buildings, and other constructions that are
used to produce goods and services “

Labor “The work time and effort that people devote to producing goods and services
-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.“

Entrepreneurship “The human resource that organizes land, labor, and capital “
 C-For Whom goods and services
get produced?
• Who gets the goods and services depends
on the incomes that people earn
.
.
• Land earns rent
• Labor earns wages
• Capital earns interest
• Entrepreneurship earns profit
 Second big economic question
Can the Pursuit of Self-Interest Promote the
Social Interest?
Self-Interest
You make choices that are in your self-interest choices that you
think are best for you.

Social Interest
Choices that are best for society as a whole are said to be in the
social interest.
Social interest has two dimensions:
oEquity: is fairness, but economists have a variety of views about what is fair.
oEfficiency: is achieved when the available resources are used to produce
goods and services:
1.At the lowest possible price & 2- In quantities that give the greatest possible
benefit.
–Four topics that generate discussion and that illustrate tension
between self-interest and social interest are

Globalization
 The information-age economy
 Climate change
 Economic instability
The Economic Way of Thinking
Six key ideas define the economic way of thinking:

o A choice is a tradeoff.

o Benefit is what you gain from something.

o Cost is what you must give up to get something.

o People make rational choices by comparing benefits and

costs.
o Choices respond to incentives.

o Most choices are “how-much” choices made at the

margin.