DERIVATION OF THE TERM ECONOMICS Capital-“Capital Earns Interest.
”
-economics from Greek “oikonomia”- household Capital is “man-made” goods used to produce other
Management goods or services.
“oikos” or “eco”= household / home Examples include office buildings, stores, and factories
“nomos” or “nemein” = management (physical plant), equipment, and software.
-Economics studies the efficient allocation of the The purchase of new capital equipment is often
scarce means of production toward the satisfaction funded through loans, so the lender earns interest
of from its productivity.
human wants.
-“Economics is the science of greed”- F. Meyer Entrepreneurial Ability- “Earns Profits.”
-“He who will not economize will have to agonize. “— The Entrepreneur-Sets up a business, assembles the
Confucius needed resources, risks his/her own (or borrowed)
-“Economics is the study of scarcity”-Anonymous money.
MANAGER Is a person who directs resources to Our Economic Problem Revisited
achieved a stated goal. Our economic problem is that we have limited
This definition includes all individuals who (1) direct resources available to satisfy relatively unlimited
the efforts of others, including those who delegate wants.
tasks within an organization such as a firm, a family, or
a club; (2) purchase inputs to be used in the Opportunity Cost: A Fundamental Concept in
production of goods and services such as the output Economics
of a firm, food for the needy, or shelter for the Opportunity cost is the foregone value of the
homeless; or (3) are in charge of making other next best alternative. The value of thing we
decisions, such as product price or quality. give up (our second-best choice)
MANAGERIAL ECONOMICS
-Is the study of how to direct scarce resources in Full Employment and Full Production
the way that most efficiently achieves a Full employment is when a society’s human
managerial goal. resources are being used with maximum efficiency.
Generally, a (liberal)4 – 6% (conservative)
The Central Fact of Economics: Scarcity unemployment rate is considered full employment.
Factors Of economics are limited to satisfy our
unlimited wants Full Production is when a society’s resources are
being allocated in the most efficient manner
Four economic resources: possible.
Land-Land Earns “Rents.” Full production can include physical resources (land
-Land includes natural resources and capital) and human resources (labor and
How is “land” used in an economy? entrepreneurial ability).Generally, a 85–90% capacity
-Extraction of minerals (mining) and farming utilization rate is considered full production of a
(agriculture) provides the site for factories, office nation’s capital.
buildings, shopping centers, homes, etc.
Economic rents are money received from something Underemployment of Resources
that is given by nature, rather than produced by Underemployment of resources lowers the
human effort. productive output of the nation as a whole.
Unemployment and low capacity utilization mean
Labor-“Labor Earns Wages.” that society is not allocating its resources efficiently
Labor is work and time for which one is paid in order to maximize output.
Labor involves human effort. An unemployment rate greater than 5% is
About two-thirds of the total resource cost is the cost considered underemployment of our labor
of labor resources.
Notes that unpaid labor (housework, volunteer work)
can also contribute to the satisfaction of human The Production Possibilities Curve
wants.
The Production Possibilities Curve represents our
economy at Full employment and Full production.
Productive efficiency occurs only when we are can also contribute to the satisfaction of human
operating on the production possibilities curve. wants.
Productivity efficiency means that the output of one Capital- Capital-“Capital Earns Interest.”
good cannot be attained without reducing the output Capital is “man-made” goods used to produce other
of some other good. goods or services. This includes stores, building and
plant and equipment. Additional Capital is funded
Guns versus Butter example focuses on government’s through loans and lender earns interest.
choice between military spending or spending on
social programs. Entrepreneurial Ability- “Earns Profits.”
The Entrepreneur-Sets up a business, assembles the
Remember: businesses and consumers face trade-offs needed resources, risks his/her own (or borrowed)
too! money.
Production of possibilities curve shows the possible
combination of guns and butter extending from 15 Explain & give illustration of what is opportunity cost
butter and 0 guns to 0 butter and 5 guns. Opportunity cost is the foregone value of the
next best alternative. The value of thing we
Law of increasing cost-as the output of one good give up (our second-best choice). For instance, you
expands, the opportunity cost of producing have to choose between sleeping, eating or study
additional units of this good increases. economics. You chose studying instead of sleeping
and eating in order for you pass the exam. You payed
ECONOMIC GROWTH the opportunity cost; your sleep and starve.
Economic growth enables a society to produce more
guns and more butter – or whatever goods and Discuss the production possibilities curve.
services are allocated resources. The Production Possibilities Curve represents our
economy at Full employment and Full production
What causes economic growth? Productivity efficiency means that the output of one
-More resources or better technology good cannot be attained without reducing the output
(ways of using resources) of some other good.
-More or better trained labor
-More or improved plant and equipment
(capital)Technological change (new fertilizer, shift
from typewriter to computer)
ACTIVITY
Define Economics
Economics studies the efficient allocation of the
scarce means of production toward the satisfaction
of
human wants.
Oikonomia- household management
oiko- household nomos- management
Discuss the Economic Problem
Our economic problem is that we have limited
resources available to satisfy relatively unlimited
wants.
Enumerate the four economic
resources and explain
Land- earns rent and includes natural resources. we
can use it in mining, build in buildings and farming.
Labor- earn wages and it is the work and time which
one is paid, this includes human effort. Unpaid labor