Two Big Economic Questions Two big questions summarize the scope of economics: How do choices end determining what, how, and for whom goods and services get produced? When do choices made in the pursuit of self-interest( 个人利益） also promote the social interest( 个人利益）？

Two Big Economic Questions What, How, and For Whom? What, How, and For Whom problems are regarded as three basic economic problems. We produce goods and services. Goods and services( 产品和服务） are the objects that people value and produce to satisfy human wants.

What, how, and for whom problem What to produce ( 生产什么）？ Agriculture accounts for less than 1 percent of total U.S. production, manufactured goods for 20 percent, and services for 80 percent. In China, agriculture accounts for 10 percent of total production, manufactured goods for 50 percent, and services for 40 percent.

What, how, and for whom problem How to produce ( 生产什么）？ Goods and services are produced by using productive resources that economists call factors of production. Factors of production( 生产要素） are grouped into four categories: Land Labor Capital Entrepreneurship

What, how, and for whom problem The “gifts of nature” that we use to Produce goods and services are land. It is also called as “natural resources”

What, how, and for whom problem It includes mountains, rivers and winds….

What, how, and for whom problem The work time and work effort that people devote to producing goods and services is labor( 劳动） The quality of labor depends On human capital ( 人力资本） Which is the knowledge and Skill that people obtain from Education, on-the-job training, and work experience.

What, how, and for whom problem The tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services are capital ( 资本）

What, how, and for whom problem The human Resource that Organizes land, Labor, and capital Is entrepreneurships.

What, how, and for whom problem For whom to produce( 为谁生产）？ Who get the goods and services depends on the incomes that people earn. Land earns rent( 租金） Labor earns wages( 工资） Capital earns interests( 利息） Entrepreneurship earns profit( 利润）

Self-interest/Social Interest? When is the pursuit of Self-interest in the Social interest? Every day, 1.3 billion Chinese and other people in other countries make economic choices that result in what,how,and For Whom goods and services are produced. Do we produce the right things in the right quantities? Do we use our factors of production in the best way? Do the goods and services go to those who benefit most from them?

Two Big Economic Questions You make choices that are in your self-interest( 个人 利益） -choices that you think are best for you. Economic man In the narrow meaning he is rational and selfish. In the broad meaning, rational but not necessarily selfish. Broad economic man always observes the axioms of behavior assumed in mainstream economic theory.

Two Big Economic Questions Social interest Choices that are best for society as a whole are said to be in the social interest( 社会利益）。 An outcome is in the social interest if it uses resources efficiently and distributes goods and services fairly. The second Big Question Is it possible that when each one of us makes choices that are in our self-interest, it also turns out that these choices are also in the social interest?

Self-Interest/Social interest? Self-interest and social interest may be in harmony. Adam Smith( ) In The Wealth of Nations, he was the first to develop this insight fully: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

Self-Interest/Social interest? Smith saw people as economic agents being as it were guided by an “invisible hand”( 看不见的手） The price mechanism( 价格机制） will guide the invisible hands to move around. It is possible that when each one of us makes choices that are in our self-interest, it also turns out that these choices are also in the social interest.

How can we treat with? 1. 商人无利不起早； 2. 无商不奸，无奸不商； 3. 商人唯利是图；商人图利（ legal?) 4. 利己主义 Egoism: 利己利他；主观为自己，客观 为他人 5. 自私自利（只顾自己，不顾他人） Self-interest and social interest may be conflict.

Self-Interest/Social interest? However, Adam Smith was not a naïve proponent of laissez-faire, and never argued that an ‘’invisible hand” automatically coordinates economic activity to produce optimal results when left alone.

Themes of Microeconomics Microeconomics deals with limits Limited budgets Limited time Limited ability to produce How do we make the most of limits? How do we allocate scarce resource?

Themes of Microeconomics A consumer faces limited income, he must make trade-offs( 取舍 ). Do I purchase a new car or second-hand car? Do I work or go on vacation? Should I consume now or save more money? How are these trade-offs best made?

Themes of Microeconomics A Producer faces with limited resources, What types of products should I produce? Do we hire more workers or buy new machinery? How are these trade-offs best made?

The Economic Way of Thinking 1.Choices and Tradeoffs The economic way of thinking places scarcity and its implication, choice, at center stage. You can think about every choice as a tradeoff- an exchange-giving up one thing to get something else.

The Economic Way of Thinking The classic tradeoff is “guns versus butter.” “Guns” and “butter” Stand for any two objects or value.