ECONOMICS 201

Economics

• social science that studies how individuals, businesses, governments, and nations allocate scarce resources to satisfy unlimited wants and needs.

• study of choice and scarcity

• how incentives drive human behavior

• involves weighing costs and benefits

Social Science

focused on the study of human behavior, societal interactions, and the structures that shape communities

Economics as Social Science

• deals with studying the BEHAVIOR OF CONSUMERS so the resources will be allocated efficiently.

• fulfillment of wants and needs THROUGH OTHERS

• maintaining the Relationship

• focuses on individuals behavior looking for ways to sustain and satisfy needs by interacting with one another to pursue interests.

Adam Smith

Father of Modern Economics

Resources

• materials to use to produce more benefit.

• can be used for trade to build relationship

• raw materials used to produce goods & services.

• Finite (not abundant)

4 Types of Resources

1. Land

2. Labor

3. Capital

4. Entrepreneurship

Land

• natural resources

• not been modified by human effort

• Example: The wheat grown in a field to make flour, the water used to mix the dough, and the plot of land the bakery building physically sits on

Labor

• man power

• physical and mental effort exerted by human beings to produce a good or service.

• Example: The baker waking up at 4:00 AM to knead the dough, the cashier taking orders at the counter, and the cleaner who sanitizes the kitchen at night.

Capital

• man-made goods used to produce other goods

• means the tools, machinery, and infrastructure bought with money

• Example: The industrial ovens, commercial dough mixers, baking sheets, delivery vans, and register systems.

Entrepreneurship

• combines the other three resources (Land, Labor, and Capital) to create a viable business.

• take the financial risk and decide how to organize the resources to make a profit

• Example: The bakery owner who came up with a unique sourdough recipe, secured a loan to buy the ovens (Capital), rented the store space (Land), hired the staff (Labor), and took the risk of opening the shop.

Systems of Allocation

• Price

• Government Distribution

• First Come

• Forced Merit

Price

• the scarced the resources, the higher the price

• distribution is based on capacity to pay

ex. diamond being expensive because it is scarce than water. (water is abundant)

Government Distribution

• allocation based on government decision

• often trying to make it equal or based on direct need