Basic Economics
13th Edition
Frank V. Mastrianna
© 2003 South-Western College Publishing Company
Chapter 1
The Nature and
Scope of Economics
Economics Defined
 How
people and institutions make
choices
 How
the choices determine how
resources are used
3
Economics as a Science
Organized body of knowledge
Coordinated, arranged, and systematized
according to general laws and principles
Social science
Study of the behavior and interactions of
human beings as individuals and in groups
4
Economic Theory and Policy
Economic Theory
Develops rules and principles
Guide for action under a given set of circumstances
Economic Policy
What is actually done under a given set of
circumstances
Political, military, and social aspects
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Production
Production
Creation or addition of utility
Utility  ability of a good or service to
satisfy a want
Total Product  sum of all goods and
services produced by an economy over a
given period of time
6
Distribution
Distribution
Allocation of the total product among
productive resources
Monetarily  distribution of money
incomes among the owners of the productive
resources
7
Productive Resources
Inputs or resources necessary before a person
or business can engage in the production of a
good or service
Labor  time and effort expended by human beings
involved in the production process
Land  the resources of the land, sea, and air
Capital  goods used to produce other goods and
services
Enterprise  act of organizing and assuming the
risk of a business venture
Entrepreneur  person who organizes and assumes risks
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Functional Distribution of Income
RESOURCES
Labor
Land
Capital
Enterprise
TYPES OF
PAYMENT
TOTAL
PRODUCT
Wages
Rent
Interest
Profits
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Positive and Normative Economics
Positive economics
Economics of what is
Relationships that are verifiable
Normative economics
Economics of what ought to be
Combines economics and politics and policy
10
Consumption
 Use
of a good or service
 Ultimate
end of economic activity
 Production
and distribution driven by
consumption desires
11
Goods and Services
 Free
good
Public good
Consumer goods
Capital goods
12
Economic Good
Object or service
Utility
Scarce
Transferable
Scarcity
Not a sufficient amount available to meet everyone’s
wants
Price has to be paid to obtain the good or service
Greater the scarcity, the greater the value or price
13
Free Goods and Public Goods
Free Good
Good that lacks the element of scarcity  no price
Public Good
Economic good to the supplier
Free to the user
Public parks, libraries, and the interstate highway
system
14
Consumer and Capital Goods
Consumer Goods
Goods that are directly used by the consuming
public
Books, paper, food, clothing
Capital goods
Goods used to produce other consumer or capital
goods
Buildings, machinery, equipment
Durable and non-durable
15
Wealth and Income
Wealth
Value of things at a particular time
Human capital
the stock of labor talents and skills used to increase
productivity
Total income
the total value of the goods and services produced
over a period of time (usually 1 year)
16
Micro and Macroeconomics
 Microeconomics:
deals with the economic
problems of the individual, the firm, and
the industry
 Macroeconomics: deals with the
aggregates of economics - total
production, total employment, and
general price level
17