What is Economics?

It’s all about scarcity!

Scarcity - the limited nature of society’s resources

Economics - the study of how society manages scarce resources

Society - people, government and markets

Questions to ask:

• What are society’s resources?
  • It is often divided into 3 broad categories - land, labour, and capital. We call these the factor of production
  • Land - All natural endowments (禀赋)
  • Labour - All mental and physical human resources
  • Capital - All manufactured aids to production
  • Goods (e.g., cars, steel, and clothing) are tangible and services (e.g., legal advice, internet access, and education) are intangible
• Why is scarcity inevitable?
  • While resources in the world are limited, human wants are always unlimited.
• What are the consequences of scarcity?
  • We must make a choice!

<aside> 💡 Scarcity implies that choices must be made, and making choices implies the existence of costs

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Opportunity Cost

Key questions

1. Who makes which choices? (government? market?)
2. How much information do they have when they make their choices? (statistics)
3. What factors affect their decision-making?

• If resources are scarce, choices imply foregone (过去的) alternatives
• These alternatives are defined as the ‘opportunity cost” of a choice