Economics
| Author | Roger Luft |
| Pages | 223-227 |
Page 223
Economics is often described as a body of knowledge or study that discusses how a society tries to solve the human problems of unlimited wants and scarce resources. Because economics is associated with human behavior, the study of economics is classified as a social science. Because economics deals with human problems, it cannot be an exact science and one can easily find differing views and descriptions of economics. In this discussion, the focus is an overview of the elements that constitute the study of economics, that is, wants, needs, scarcity, resources, goods and services, economic choice, and the laws of supply and demand.
Every person is involved with making economic decisions every day of his or her life. This occurs when one decides whether to cook a meal at home or go to a restaurant to eat, or when one decides between purchasing a new luxury car or a low-priced pickup truck. People make economic decisions when they decide whether to rent or purchase housing or where they should attend college.
As a society, and in economic terms, people have unlimited wants; however, resources are scarce. Do not confuse wants and needs. Individuals often want what they do not need. In the automobile example used above, someone might want to drive a large luxury car, but a small pickup truck may be more suited to the purchaser's needs if he or she must have a vehicle for hauling furniture. Economic decisions must be made.
A resource is scarce when there is not enough of it to satisfy human wants. And human wants are endless.
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Figure 1
Relationship of economic tenets
Because of unlimited wants and limited resources to satisfy those wants, economic decisions must be made. This problem of scarcity (limited resources) must be addressed, which leads to economics and economic problems.
Figure 1 illustrates the relationships that exist relative to wants and scarcity. Many elements influence economic decisions. To better understand economics, it is critical to understand what is shown in Figure 1.
Economic resources, often called factors of production, are divided into four general categories. They are land, labor (sometimes referred to as human resources), capital, and entrepreneurship.
Land describes the ground that might be used to build a structure such as a factory, school, home, or church, but it means much more than that. Land is also the term used for the resources that come from the land. Trees are produced by the land and are used for lumber, firewood, paper, and numerous other products, so they are referred to as land. Minerals that come from the ground, such as oil that is used to make gasoline or to lubricate automobile engines, or gold that is used to make jewelry, or wheat that is grown on the land and is used in the production of bread and other products, or sheep that are raised for the wool they produce that is used to make sweaters are all described as land.
Labor is the general category of the human effort that is used for the production of goods and services. This includes physical labor, such as harvesting trees for lumber, drilling for oil or mining for gold, growing wheat for bread, or raising the sheep that produce wool for a sweater. In addition to physical labor, there is mental labor, which is necessary for such activities as planning the best ways to harvest trees and making decisions about which trees to harvest. Labor is also involved when a doctor or surgeon analyzes and diagnoses (mental labor) before performing a medical procedure, then performs the procedure (physical labor).
Capital is input that is often viewed in two ways, much as is labor. Capital might be viewed as human capital—the knowledge, skills, and attitudes that humans possess that allow them to produce. The other type of capital is physical capital, which includes buildings, machinery, tools, and other items that are used to produce goods and service. Traditionally, physical capital has been a prerequisite for human capital; however, because of rapid changes in technology, today human capital is less dependent on physical capital.
One special form of human capital that is important in an economic setting is entrepreneur-ship (often thought of as the fourth factor of production). Entrepreneurial abilities are needed to...
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