General Introduction To Economics

General Introduction Into Economics - AP/ECON 1000 Lecture Notes What Is Economics? ● To understand how a business operates, we must know something about the economic environment in which it exists. RESOURCES: INPUTS AND OUTPUTS ● Economics is a theoretical study of how people, businesses, governments, and entire countries allocate scarce resources to satisfy myriad wants. ● Resource allocation is about goods and services production, distribution, and consumption. ● Resources are the inputs of what shall be produced as the output. Resources could encompass any or all of the following, accompanied by their relationships to one another : 1. Land and other natural resources 2. Labour (physical and mental) 3. Capital in the form of buildings and equipment 4. Entrepreneurship 5. Knowledge - Resources are put together to make goods and services. The land and the natural resources provide the necessary raw materials. Labour turns raw material into products and services. Capital refers to the materials (equipment, buildings, vehicles, cash, and so on) that are required for production. Entrepreneurship provides the skill, drive, and creativity needed to bring the other resources together to produce a good or service to be sold into the marketplace. These we call resource factors of production as a business uses them to make things. The following would be the factors of production used in the process of producing a shirt: 1. The land for the factory on which the shirt factory sits, the electricity used to run this shirt factory, and the raw cotton from which the shirts are made 2. The labourers who make the shirts 3. The factory and equipment for the manufacturing process, plus money for running the factory 4. It is entrepreneurship skills and the knowledge of production used to coordinate other resources in the making of shirts and distributing them to the marketplace. Input & Output Markets ● Many of the factors of production are provided to businesses by households. - For example, it is from households that businesses get labor as workers, land, and buildings as landlords, and capital as investors. - In response, businesses pay the households in return with incomes like wages, rent, and interest by providing these resources. The goods and resources from households are then taken to businesses to produce goods and services, which are then sold in exchange for revenue back into businesses. ● The money then is used by businesses to continue purchasing more resources, and the cycle continues. ● This is illustrated in the following diagram, "The Circular Flow of Inputs and Outputs," which shows the fact that there are dual roles for households and businesses ● Households not only provide the factors of production but also consume goods and services. ● Businesses buy resources and produce and sell goods and services ECONOMIC SYSTEM ● Economists study how households and businesses deal with one another and how the factors of production are pooled to produce goods people require. - In essence, economists attempt to answer three sets of questions : 1. What goods and services should be produced to meet consumers' needs? In what quantity? When? 2. How will goods and services be produced? 3. Who should produce the goods, and what resources, including technology, should be combined to create them? 4. Who should get the goods and services produced? 5. How should these be allocated among consumers?