basic economic concepts

LIKE SCARCITY, NEEDS AND WANTS, AND JUNK LIKE THAT

Basic Econ Concepts

Needs and Wants

Scarcity

“Limited quantities of resources to meet unlimited wants.” What’s that mean?

Scarcity

Your wants are pretty much unlimited. Even if yours personally aren’t, once you add up

everybody in the population, the collective wants are unlimited.

All resources, goods, and services are limited, however.

This means it’s impossible for all the wants to be met.

Scarcity

Economics, then, tries to solve the problem of scarcity. This doesn’t mean to make unlimited stuff, but

figuring how to distribute scarce, limited stuff in the best way to meet wants.

It also wants to see how people satisfy needs and wants by the choices they make. Why X and not Y? Why McDonald’s? Why did banks buy

mortgage-backed securities? Why TXU and not Gexa? Why Crocs? Seriously… why Crocs?

Goods and Services

Goods Stuff.

Services Things people do for others.

Shortage

When there isn’t enough stuff. Not enough of a product can be supplied or it won’t be

supplied. At least not at current prices. If prices go up, it may become profitable for somebody

to provide the good or service and that will eliminate the shortage.

Factors of Production

Land, Labor, CapitalThese have specific meanings in economics.

Land

All natural resources used to produce goods and services.

Labor

Work people get paid for.

Capital

Human-made resources used to produce stuff or provide services. Note this is different from land, which is natural

resources. Two types: Physical and Human.

Physical Capital

Non-human assets used by real humans in production.

Whoa! Check out that physical capital!!!

Physical Capital

This includes things like buildings, factories, equipment, computers, paper, copy machines, etc.

Typically, this increases productivity since you can do more of X and more time is freed up to pursue Y.

Not so much.

Human Capital

The education, experience, abilities, and knowledge of an employee.

These have economic value.Not all labor is equal in value.