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Economic Studies ch.1.2022

The document provides an introduction to economics, defining key terms and concepts. It explains that economics is the study of how individuals and societies make choices about production, distribution, and consumption of goods and services with limited resources. It also discusses the economic problem of scarcity, where human wants are unlimited but resources are limited. This forces societies to answer three basic questions: what to produce, how to produce, and for whom to produce. The document then defines the traditional factors of production - land, labor, capital, entrepreneurs, and technology - and provides brief descriptions of each.

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Amgad Elshamy
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19 views3 pages

Economic Studies ch.1.2022

The document provides an introduction to economics, defining key terms and concepts. It explains that economics is the study of how individuals and societies make choices about production, distribution, and consumption of goods and services with limited resources. It also discusses the economic problem of scarcity, where human wants are unlimited but resources are limited. This forces societies to answer three basic questions: what to produce, how to produce, and for whom to produce. The document then defines the traditional factors of production - land, labor, capital, entrepreneurs, and technology - and provides brief descriptions of each.

Uploaded by

Amgad Elshamy
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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Chapter (1)

Introduction
The word “Economy” comes from two Greek words:
- “Oikos” which means “a house”
- “Nemein” which means “to manage”

So, “economy” means “managing a household”

Economics:
 It is a social science that examines how people choose among the alternatives available to
them.
o It is “social” because it involves people and their behavior.
o It is “science” because it uses, as much as possible, a scientific approach in its
investigation of choices.
 It is the study of how individuals and societies satisfy their unlimited wants with limited
resources.
 It is the study of how people make choices to satisfy their wants.
 It is the study of how society manages its scarce resources
 It is the study of choices under conditions of scarcity.

Economics is a science that examines the production, distribution, and consumption of goods
and services, as well as the creation of wealth.
- Studying economics provides many valuable benefits, such as the knowledge that is
needed to understand the impact of developments in business, society, and the world
economy.
- The study of economics aids individuals in understanding the decisions of households,
businesses, and governments based on beliefs, human behavior, structure, needs, and
constraints.

The Economic Problem


- The economic problem is that there is unlimited needs and limited resources available. So,
we must choose between alternatives.
- The conflict between unlimited needs and wants, and scarce resources has an important
consequences. People cannot have everything they want and therefore must make
choices.

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Scarcity
Scarcity: means that society has limited resources and therefore cannot produce all the
goods and services people wish to have.
It occurs because there are unlimited wants but only limited resources to satisfy those wants.

Scarcity leads to three economic questions:


Because of scarcity, every society “economy” in the world face three major decisions.
Scarcity forces to make choices through answering three basic questions:

 What to produce?
What commodity? What quantity?
 How to produce?
Means of production? By whom to produce? By what technique?
 For whom to produce?
Distribution of goods and services. Distribution of income and wealth.

Resources are anything that can be used directly or indirectly to satisfy human needs.
Sometimes productive resources are called “Factors of production”
These factors or resources are also called “inputs”
Production in economics is understood as the transformation of inputs or factors into outputs.
Factors of production are traditionally classified as:

 Land or Natural resources


 Labor
 Capital
 Entrepreneurs
 Technology

Factor 1: Land (Natural resources)


- Land refers to earth’s surface. But in economics, the term land is used in a very wider
sense.
- Marshall defined land as “the materials and the materials and forces which nature gives
freely for man's aid in land, water, in air and light and heat.
- Land is paid “Rent”

Factor 2: Labor
- Labor is human effort that can be applied to production.
- Labor, which is the time human beings spend producing goods and services.
- Labor is paid “wage”

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Factor 3: Capital
- When you hear the word capital, you probably think of money.
- In economic terms, however, capital is all the resources made and used by people to
produce and distribute goods and services.
- Tools, machinery, and factories are all forms of capital.
- Capital is all of a producer’s physical resources. For this reason capital is sometimes called
physical capital.
- While businesses invest in real capital, workers invest in human capital – the knowledge
and skills gained through experience.
- When workers possess more human capital, they are more productive.
- Physical capital or real capital which is tools, machines, buildings.
- Human capital is the abilities, skills, training of labor, includes such things like college
degree or good job training.
- Capital is paid “interest rate”

Factor 4: Entrepreneur
- Entrepreneur brings the other three factors together. It is the combination of vision, skill,
and willingness to take risks that is needed to create and run new businesses, take the risk
of investing money in the hope of making a profit.
- Entrepreneur is a person who starts and manages a business. He organizes the land, labor,
capital resources needed to produce the goods and services.
- Entrepreneur is paid “profit”

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