Unit 7: Foundations of
Economics:
The Fundamentals of
Economics
The Fundamentals of
Economics:
Main Idea:
Introduction to
Economics
Notes:
• Economics is the study
of how individuals,
families, businesses, and
societies use limited
resources to fulfill their
unlimited wants.
• There are 2 parts of
economics:
1. Microeconomics
2. Macroeconomics
The Fundamentals of
Economics:
Main Idea:
Introduction to
Economics (cont’d.)
Notes:
• Microeconomics is the
study of the behavior &
decision making by small
units.
– EX: individuals, families, firms
• Macroeconomics is the
study of the economy as a
whole—the behavior and
decision making by large
units.
– EX: governments
The Fundamentals of
Economics:
Main Idea:
Wants, Needs, and
Choices
Notes:
• Economists define a need as
anything necessary for
survival.
– EX: food, water, shelter
• A want is anything else that
is not necessary to survive.
– EX: cars, electronics, etc.
• We balance our wants and
needs by making choices—
how we utilize our resources
to satisfy our wants/needs.
The Fundamentals of
Economics:
Main Idea:
Factors of Production
Notes:
• Scarce resources refer to
the factors of
production, or the
resources needed to
produce goods and services.
• There are essentially 4 basic
factors of production:
1.
2.
3.
4.
Land
Labor
Capital
Entrepreneurship
The Fundamentals of
Economics:
Main Idea:
Factors of Production:
Land
Notes:
• In economics, the term
land refers to the
natural resources that
exist without human
intervention.
– EX: geographical
land/water, fish, animals,
trees, mineral deposits,
etc.
The Fundamentals of
Economics:
Main Idea:
Factors of Production:
Labor
Notes:
• Labor is the work people
do (also called human
resource).
• Labor includes the work
people do to produce
goods (tangible objects
that can satisfy people’s
wants/needs) and
services (actions that
can satisfy people’s
wants/needs)
The Fundamentals of
Economics:
Main Idea:
Factors of Production:
Capital
Notes:
• Capital refers to
manufactured goods used
to make other goods and
produce other services.
– EX: Machines, tools, etc.
• When capital is combined
with land and labor, the
value of all 3 factors of
production increases.
– EX: uncut diamond (land) +
diamond cutter (labor) +
diamond-cutting machine
(capital) = highly valued gem
The Fundamentals of
Economics:
Main Idea:
Factors of Production:
Capital (cont’d.)
Notes:
• Capital also increases
productivity by
allowing goods/services
to be produced faster and
more efficiently.
The Fundamentals of
Economics:
Main Idea:
Factors of Production:
Entrepreneurship
Notes:
• Entrepreneurship is
when individuals take
risks to develop new
products and start new
businesses in order to
make profits.
– 30% of new businesses fail.
The Fundamentals of
Economics:
Main Idea:
Technology
Notes:
• Some modern economists
would add technology
to the list of factors of
production.
• Technology is the use of
science to develop new
products and new
methods for producing
and distributing goods
and services.