Unit 7: Foundations of Economics: The Fundamentals of Economics

The Fundamentals of Economics: Main Idea: Introduction to EconomicsNotes: Economics is the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants. Economics is the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants. There are 2 parts of economics: There are 2 parts of economics: 1.Microeconomics 2.Macroeconomics

The Fundamentals of Economics: Main Idea: Introduction to Economics (cont’d.) Notes: Microeconomics is the study of the behavior & decision making by small units. Microeconomics is the study of the behavior & decision making by small units. – EX: individuals, families, firms Macroeconomics is the study of the economy as a whole—the behavior and decision making by large units. Macroeconomics is the study of the economy as a whole—the behavior and decision making by large units. – EX: governments

The Fundamentals of Economics: Main Idea: Wants, Needs, and ChoicesNotes: Economists define a need as anything necessary for survival. Economists define a need as anything necessary for survival. – EX: food, water, shelter A want is anything else that is not necessary to survive. A want is anything else that is not necessary to survive. – EX: cars, electronics, etc. We balance our wants and needs by making choices— how we utilize our resources to satisfy our wants/needs. We balance our wants and needs by making choices— how we utilize our resources to satisfy our wants/needs.

The Fundamentals of Economics: Main Idea: Factors of Production Notes: Scarce resources refer to the factors of production, or the resources needed to produce goods and services. Scarce resources refer to the factors of production, or the resources needed to produce goods and services. There are essentially 4 basic factors of production: There are essentially 4 basic factors of production: 1.Land 2.Labor 3.Capital 4.Entrepreneurship

The Fundamentals of Economics: Main Idea: Factors of Production: LandNotes: In economics, the term land refers to the natural resources that exist without human intervention. In economics, the term land refers to the natural resources that exist without human intervention. – EX: geographical land/water, fish, animals, trees, mineral deposits, etc.

The Fundamentals of Economics: Main Idea: Factors of Production: LaborNotes: Labor is the work people do (also called human resource). Labor is the work people do (also called human resource). Labor includes the work people do to produce goods (tangible objects that can satisfy people’s wants/needs) and services (actions that can satisfy people’s wants/needs) Labor includes the work people do to produce goods (tangible objects that can satisfy people’s wants/needs) and services (actions that can satisfy people’s wants/needs)

The Fundamentals of Economics: Main Idea: Factors of Production: CapitalNotes: Capital refers to manufactured goods used to make other goods and produce other services. Capital refers to manufactured goods used to make other goods and produce other services. – EX: Machines, tools, etc. When capital is combined with land and labor, the value of all 3 factors of production increases. When capital is combined with land and labor, the value of all 3 factors of production increases. – EX: uncut diamond (land) + diamond cutter (labor) + diamond-cutting machine (capital) = highly valued gem

The Fundamentals of Economics: Main Idea: Factors of Production: Capital (cont’d.) Notes: Capital also increases productivity by allowing goods/services to be produced faster and more efficiently. Capital also increases productivity by allowing goods/services to be produced faster and more efficiently.

The Fundamentals of Economics: Main Idea: Factors of Production: EntrepreneurshipNotes: Entrepreneurship is when individuals take risks to develop new products and start new businesses in order to make profits. Entrepreneurship is when individuals take risks to develop new products and start new businesses in order to make profits. – 30% of new businesses fail.

The Fundamentals of Economics: Main Idea: TechnologyNotes: Some modern economists would add technology to the list of factors of production. Some modern economists would add technology to the list of factors of production. Technology is the use of science to develop new products and new methods for producing and distributing goods and services. Technology is the use of science to develop new products and new methods for producing and distributing goods and services.