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Eco 2

Economics is the study of how people try to satisfy unlimited wants with scarce resources. It assumes that people rationally make choices to maximize their own satisfaction within constraints. The key problem is that resources like land, labor, capital, and entrepreneurship are limited, creating scarcity, while human wants are virtually unlimited. This requires people and societies to make choices that involve opportunity costs, trading one option for another.

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dharshini deivasigamani
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30 views14 pages

Eco 2

Economics is the study of how people try to satisfy unlimited wants with scarce resources. It assumes that people rationally make choices to maximize their own satisfaction within constraints. The key problem is that resources like land, labor, capital, and entrepreneurship are limited, creating scarcity, while human wants are virtually unlimited. This requires people and societies to make choices that involve opportunity costs, trading one option for another.

Uploaded by

dharshini deivasigamani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Welcome to Economics

What is Economics?

“Economy is the art of making the most


of life.”
- Gary Becker
1992 Nobel Prize Winner in Economics
Economics:
 The study of how people try to satisfy their
wants through the use of scarce resources

 Need vs. Want


 NEED = Basic requirement for survival
 WANT = A way of expressing a need

 I need food to survive. I want a piece of pizza


Key Assumptions of
Economics
 People
 Are rationally self-interested
 Strive to achieve their greatest satisfaction
 Not the same as selfishness
 Make decisions at the margin
 Marginal benefit vs. marginal cost
 Buying an iTouch
 Joining a gym
 Studying in the library
The Problem
 People’s economic wants are unlimited…
 “I can’t get no satisfaction…”
 “I just can’t get enough…”
 BUT….
 Society’s resources are scarce.

 UNLIMITED WANTS vs.
 LIMITED RESOURCES
Scarcity
 Scarcity occurs when wants exceed the
availability of societal resources.
 Wants > Resources

MR. RESOURCES

MR. WANTS
Choices
 We must make choices about how to use
scarce resources.
 4 eggs  chocolate chip cookies or brownies?
 We face costs, or tradeoffs, when we make a
choice.
Opportunity Costs
 Cookies  Opportunity cost

4 eggs  Cookies

 The next best alternative use for a resource.


(social, emotional, monetary, jealousy)
What Are These Scarce
Resources?
 LAND

 LABOUR

 CAPITAL

 ENTREPRENEURSHIP
Land Labor
 NATURAL  HUMAN CAPITAL
RESOURCES,  PAYMENT = WAGES
 PAYMENT = RENT
Capital Entrepreneurship
 TOOLS, MACHINES,  RISK-TAKING
FACTORIES INDIVIDUAL WHO
 PAYMENT = INTEREST USES FOPS TO MAKE
A PROFIT
 PAYMENT = PROFIT
Factors of Production
 Land
 All 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
 Any human-made resource that is used to create other
goods and services.
 Entrepreneurship
 The act of a person assembling the factors to make
new goods and services.

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