Macro & Microeconomics & the 3 Big Questions

Notes by Ana

- Economics: study of how people try to satisfy seemingly unlimited and competing wants through the careful use or relatively scarce resources.
o Microeconomics: deals with behavior and decision making by small units such as individuals and firms.
o Macroeconomics: deals with the economy as a whole and decision making by large units such as governments and unions.

- Scarcity: condition in which there is a lack of resources to produce things that people need or want.

- 4 Factors of Production
o Land: “gifts of nature.” Natural resources, for example deserts, forests, livestock, and climate (limited supply).
o Capital: tools, equipment, and factories used in production.
o Labor: people that offer their skills, abilities, and efforts.
o Entrepreneurs: “innovators.” Driving force of the economy uses resources to create something new.

- 3 Basic Questions
o WHAT to produce: society cannot have everything its people want.
o HOW to produce: see which method is lower in cost so that the items are less expensive, which could be more affordable.
o FOR WHOM to produce: society must decide who will receive the things produced.
(ANSWERED ONLY WHEN THERE ARE NOT ENOUGH RESOURCES TO SATISFY PEOPLE’S UNLIMITED WANTS AND NEEDS)