What is Economics? PDF

WHAT IS ECONOMICS? https://www.youtube.com/watch?v=uhiCFdWeQfA ECONOMICS Economics studies the choices that individuals, businesses and governments make as they cope with scarcity and the incentives that influence those choices. The basic economic problem is how to best match limited...

WHAT IS ECONOMICS? https://www.youtube.com/watch?v=uhiCFdWeQfA ECONOMICS Economics studies the choices that individuals, businesses and governments make as they cope with scarcity and the incentives that influence those choices. The basic economic problem is how to best match limited resources with unlimited wants and needs. © Cool Business SCARCIT Y Scarcity is the inability to satisfy all of our wants. What you can afford to buy is limited by your income Businesses are limited by their production capacity Governments are limited by how much taxes they collect © Cool Business CHOICE Because we can’t get everything we want, we have to make choices. If you can’t afford both an iPad and an iPhone, you must choose which one to buy You can’t spend tonight both studying and going to work at the same time. Governments must choose how to spend tax dollars © Cool Business INCENTIVES Incentives help you make choices. They can be: A reward that encourages an action A penalty that discourages an action Ex: Prices If the price of a laptop is too high, not enough people will buy it because they can’t afford it. But if the laptop goes on sale, people are incentivized to buy it. If the government increases taxes on cigarettes, this financial “penalty” incentivizes people to stop smoking © Cool Business POSITIVE vs NORMATIVE STATEMENTS In trying to explain the facts of the world, economists distinguish facts from opinions. Positive statements are about “what is”; they can be evaluated as true or false by checking the facts Ex: “New York is closer to Boston than Detroit” (this can be verified) Normative statements are about what you believe “should be”; it involves value judgments and cannot be factually checked Ex: “You should go to Boston instead of Detroit for your © Cool Business POSITIVE vs NORMATIVE STATEMENTS POSITIV 1. As the price of crude oil decreases, gas E prices tend to decrease as well. POSITIV 2. A rise in interest rates will likely decrease E the amount of money that is borrowed. NORMATIV 3. Climate change is our biggest economic E problem. NORMATIV 4. The government should ban all smoking. E NORMATIV 5. Taking this class was a wise economic E © Cool Business ECONOMIC MODELS Supply & Demand Model Economists create models to compare normative statements (predictions) with positive statements (facts) to guide policy. Example: Are TVs getting cheaper because people are buying more of them, or are people buying more TVs because they’re getting cheaper? ○ Or is some other factor(s) involved? © Cool Business MICRO vs MACRO Microeconomics is the study of choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments. Examples: Should I rent an apartment or buy a house? Is demand for organic foods increasing or decreasing? Macroeconomics is the study of the performance of the national economy and the global economy. Examples: Is the world heading into a recession? The Bank of Canada been raising interest rates. What is the impact on Canadians? © Cool Business