Definition of Economics We want more than we can get. Our inability to satisfy our wants is called scarcity. Because we face scarcity we must make choices. An Incentive is a reward that encourages an action or a penalty that discourages one.! ! 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 these choices.! ! Two Big Economic Questions! 1. How do choices end up determining what, how, and for whom goods and services get produced?! 2. When do choices made in the pursuit of self-interest also promote the social-interest?! ! 1. What, How and For Whom?! • What! What we produce varies across countries and time, e.g. 4% of Australian production is in agriculture.! • How! Goods and services are produces using factors of production.! - Land: natural resources! - Labour: physical and mental effort of workers! - Capital: tools, machines and buildings used in production! - Entrepreneurship: human resources that gather land, labour, and capital! • For Whom! Who gets the goods/services depends on the incomes that people earn.! - Land earns rent,! - Labour earns wages,! - Capital earns interest, and! - Entrepreneurship earns profit.! !