ETAR Lecture Notes - 1A

What is ECONOMICS

?

Scarcity    

 A  situa(on  in  which    

the  amount  of  something  available    is  insufficient    

to  sa(sfy  the  desire  for  it.  

HUMAN  NEEDS  AND  WANTS  

Basic  Needs  

Those that are essential to life.

Engel’s  Law  

•  Engel's  Law  states  that  as  income  rises,  percentage  of  income  spent  on  consump(on  rises  slower  as  compared  to  rise  in  income.  

Needs  Essen(al  to    Decent  and  Comfortable  Living  

Those that are not essential to life, but would make it more enjoyable.

Luxury  

Those that are neither basic nor essential to decent and comfortable living.

Public  Needs  

Private  Needs  

The  labor,  capital,    land  and  natural  resources,    and  entrepreneurship    that  are  used  to  produce    goods  and  services.  

LABOR

The time human beings spend producing goods and services.

CAPITAL  

•  A  long  las(ng  tool  that  we  produce  to  help  us  make  other  goods  and  services.  

•  Two  different  types:  PHYSICAL  and  HUMAN  •  The  capital  stock  is  the  total  amount  of  capital  at  a  na(on’s  disposal  at  any  point  in  (me.  It  consists  of  all  physical  and  human  capital  made  in  previous  periods  that  is  s(ll  produc(vely  useful.  

Physical Capital

•  The  part  of  the  capital  stock  consis(ng  of  physical  goods,  such  as  machinery,  equipment  and  factory  buildings,  computers,  and  even  hand  tools  like  hammers  and  screwdrivers.  

•  These  are  all  long  las(ng  physical  goods  that  are  used  to  make  other  things.  

Human  Capital  

Consists of the skills and knowledge possessed by workers.

LAND  

 The  physical  space  on  which  produc(on  takes  place,  as  well  as  useful  materials  –  natural  resources  –  found  under  it  or  on  it,  such  as  crude  oil,  iron,  coal,  or  fer(le  soil.  

Entrepreneurship  •  The  ability  (and  the  willingness  to  use  it)  to  combine  the  other  resources  into  a  produc(ve  enterprise.  

•  An  entrepreneur  may  be  an  innovator  who  comes  up  with  an  original  idea  for  a  business  or  a  risk  taker  who  provides  his  own  funds  or  (me  to  nurture  a  project  with  uncertain  rewards.  

       RESOURCES  vs.  INPUTS  

•  Input  is  anything  (including  a  resource)  used  to  produce  a  good  or  service.  

•  Inputs  include  not  only  resources  but  also  many  other  things  made  from  them  (cement,  rolled  steel,  electricity),  which  are,  in  turn,  used  to  make  goods  and  services.  

•  Resources,  by  contrast,  are  the  special  inputs  that  fall  into  one  of  four  categories:  labor,  land,  capital,  and  entrepreneurship.  

DOUGLASS  NORTH  

•  Douglass  Cecil  North  (born  November  5,  1920);  

•   An  American  economist  known  for  his  work  in  economic  history;  

•  Co-­‐recipient  (with  Robert  William  Fogel)  of  the  1993  Nobel  Memorial  Prize  in  Economic  Sciences.