Economics Basic Economics

What is Economics?  It is the study of how individuals and nations allocate their scarce resources for the fulfillment of seemingly unlimited wants and needs.

The fundamental problem of economics  Scarcity  This means that there is a limited amount of resources to produce the goods and provide the services that people both need and want.

Resources (Factors of Production)  Resources are those things that are used to make goods and provide services.  Economic resources include: land, labor, and capital.  All resources are scarce so all of the goods and services produced through those resources are also scarce.

Land  All of the natural resources that are used to produce goods and services.

Labor  Any effort a person devotes to a task for which that person is paid.

Capital  There are three different types of capital. These include: physical, human, and financial.

Physical Capital  Tools, equipment, and machinery that is used to create other goods and services.

Human Capital  The skills and knowledge gained by individuals through education and experience.

Financial Capital  Money used to purchase, rent or build physical capital.

The Role of the Entrepreneur  An entrepreneur is an individual who assembles the resources (factors of production) to create goods and services.  The entrepreneur is a risk-taker because there is no guarantee that what they do will be successful.

What are Goods?  These are physical objects such as clothes or shoes.

What are Services?  Services are jobs that are performed for someone else.  Examples include getting a haircut and going to the dentist.

What are Wants?  Wants are items that we desire but are not essential to survival.

What are Needs?  Needs are things like water, food, clothing, and shelter that you have to have in order to survive.