What is Economics?
“Economics is the study of how individuals
and society, experiencing virtually limitless
wants, chooses to allocate its scarce resources
to satisfy those wants.”
What is Economics?
“Economics is the study of how individuals
and society, experiencing virtually limitless
wants, chooses to allocate its scarce resources
to satisfy those wants.”
What does this definition mean?
“Economics is the study of how individuals
and society, experiencing virtually limitless
wants, chooses to allocate its scarce resources
to satisfy those wants.”
Economics studies both the individuals and society
Micro - focuses on individuals or small segments of
society
“Economics is the study of how individuals
and society, experiencing virtually limitless
wants, chooses to allocate its scarce resources
to satisfy those wants.”
Economics studies both the individuals and society
Macro - focuses on the economy as a whole or large
groups/subdivisions like Gov’ts
What is Economics?
“Economics is the study of how individuals
and society, experiencing virtually limitless
wants, chooses to allocate its scarce resources
to satisfy those wants.”
Micro – deals with behavior/decisions of
small units like individuals or firms
Macro – deals with economy as a whole &
behavior of large units like gov’t & unions
“Economics is the study of how individuals
and society, experiencing virtually limitless
wants, chooses to allocate its scarce resources
to satisfy those wants.”
Economics studies the choices we make to allocate
scarce resources
(Requirements)
Scarcity = limited, desirable, price, relative
Resources = Factors of Production
What are they exactly?
There are four categories of resources
1. Land
There are four categories of resources
1. Land
Included in LAND are air, water, & raw
materials like timber, copper, etc.
There are four categories of resources
1. Land
Land is scarce because there is only a
limited amount of it available
There are four categories of resources
1. Land
Because we want everything….
and resources are limited….
It is almost as if there is a fight that occurs between
our unlimited wants and the limited resources that
are available.
This cost is not
always a monetary
cost.
It can be a social cost,
The limited resources.
emotional cost,
Jealousy cost, there
are any number of
Our unlimited wants.
costs
Whenever our unlimited wants are going after the limited
Resources available, there is always a cost.
Nothing on Earth is free.
COST
There are four categories of resources
1. Land
The payment for land is in the form of
either mortgage or rent
What is Economics?
“Economics is the study of how individuals
and society, experiencing virtually limitless
wants, chooses to allocate its scarce resources
to satisfy those wants.”
Micro – deals with behavior/decisions of
small units like individuals or firms
Macro – deals with economy as a whole &
behavior of large units like gov’t & unions
Micro – deals with behavior/decisions of
small units like individuals or firms
Macro – deals with economy as a whole &
behavior of large units like gov’t & unions
The 4 categories of resources
(Factors of Production)
1. Land
2. Labor
Payment
Mortgage or rent
LABOR
Labor is scarce because there only so
many people on the planet AND only so
many willing and/or able to do a job
LABOR
The payment for labor =
Salary, wages, tips, commission, etc.
Micro – deals with behavior/decisions of
small units like individuals or firms
Macro – deals with economy as a whole &
behavior of large units like gov’t & unions
The 4 categories of resources
(Factors of Production)
1. Land
2. Labor
3. Capital
Payment
Mortgage or rent
Wages, salary, tips, etc.
Not this Capitol, but Capital
Capital with an A are things used
to make products
“stuff you use to make other stuff”
In economics,
money is NOT
considered to
be capital.
Not this capital either!!
Capital goods
PRODUCE
goods for future
consumption
Not this capital either!!
Money doesn’t
produce
anything,
it’s just there
Not this capital either!!
Capital
Factory
Equipment
Machinery
To be capital, it must be a physical item used in the
production process such as:
Capital
Factory
Equipment
Machinery
Capital is scarce because there are a limited
number of machines, equipment, and factories.
Capital
Factory
Equipment
Machinery
The payment for capital is:
PRINCIPAL + INTEREST
Micro – deals with behavior/decisions of
small units like individuals or firms
Macro – deals with economy as a whole &
behavior of large units like gov’t & unions
The 4 categories of resources
(Factors of Production)
Payment
Mortgage or rent
1. Land
2. Labor
Wages, salary, tips, etc.
3. Capital
Principle + Interest
4. Entrepreneurship
Entrepreneurship
An individual who is willing to take a risk
to start a business.
Entrepreneurship
Entrepreneurs are scarce because there is a
limited amount of individuals who want to
start his or her own business.
Entrepreneurship
The payment for the risk of starting a
business is in the form of:
Profit – if you are good
Entrepreneurship
The payment for the risk of starting a
business is in the form of:
Loss – if not so good.
Micro – deals with behavior/decisions of
small units like individuals or firms
Macro – deals with economy as a whole &
behavior of large units like gov’t & unions
The 4 categories of resources
(Factors of Production)
Payment
Mortgage or rent
1. Land
2. Labor
Wages, salary, tips, etc.
3. Capital
Principle + Interest
4. Entrepreneurship
Profits/Losses
3. Capital
Principle + Interest
4. Entrepreneurship
Profits/Losses
Memory Trick
Capital
Entrepreneurship
Cells are the building blocks
Land
of life, FOP’s are the
Labor building block of economics.
Factors of Production
Additional Info
Time could also be
considered a FOP…
But most consider it included
in the other factors
What is Economics?
Economists like to explain everything in
equation form
Economics = Scarcity
Scarcity = wants > availability resources
So then the mathematical formula for defining
economics is:
Economics = Scarcity = wants > availability resources
4. Entrepreneurship
Profits/Losses
Memory Trick
Capital
Entrepreneurship
Cells are the building blocks
Land
of life, FOP’s are the
Labor building block of economics.
So, Economics is…
unlimited
Economics = Scarcity = wants
>
limited
resources
On the back of this paper, copy & color the chart
(fig 1.1) from page 6 of the textbook