Basic Economics: Part 1
Updated: Mar 7, 2021
"Look at the declining television coverage. Look at the declining voting rates. Economics and economic news is what moves a country now, not politics."
-Robert Teeter, American Political Strategist
Economics controls how we live. As stated in the quote above, economics runs the country now, not politics. As the influence of economics grows, it is crucial that we understand it. In this part of my compilation, I will be giving a very brief overview of the what economics is, what scarcity is, and what the 4 factors of production are.
What Is It?
There is no single definition of economics. A common misconception of economics is that it is about money. Money plays a role in economics, but that is not what it is entirely about. I would describe economics as the study of how a society allocates scarce resources in a market of unlimited wants. One of the most important concepts that plays into this definition is scarcity.
Scarcity and Choice
Scarcity is an idea that there is a limited amount of a certain resource compared to the limitless desires for it. We can see the definition of scarcity is fairly similar to that of economics; this is because scarcity is the reason that economics exists. If resources were not limited, there would be no reason to find ways to distribute them.
Scarcity requires us to make economic choices. In this age of consumerism, we must choose between goods or services that we want. As a society, we cannot produce enough goods and services to satisfy every request, so we have no choice but to choose. The alternative that we give up when making a choice is called the opportunity cost. It represents the benefits that we have given up in exchange for our choice.
A scenario where a choice must be made is going to an expensive restaurant. You can choose between sushi made from a rare fish, or imported caviar. Since the ingredients used are so rare, you are only allowed to buy one dish. So here the scarce resources would be the fish and the caviar. Let's say that you choose the sushi. Your opportunity cost would be the caviar since that is what you have given up.
The 4 Factors of Production
We will now shift gears to production. Businesses produce goods and services to satisfy our requests. When they produce goods and services, 4 factors play into the efficiency of production: land, labor, capital, and entrepreneurship.
Land in economics is any natural resource that goes into the production of goods and services. Some examples of land in economics are trees, metals, and space. Although land is competed over, no one can exactly own the land. This ties into the idea of property rights which is basically an idea on what land ownership means in a society.
Labor is the effort put into producing goods and services. It is both the physical or mental input in production. The size of the labor force affects the efficiency of production in a market. Production is most efficient when employment is at its highest, but is inefficient when laborers are unemployed. This happens because the amount of people working determine how many goods or services are made and provided.
Capital is any asset used make production more efficient. An example of capital is a truck. Let's say that a construction company is building a house half an hour away from the companies' headquarters. It would take a long time to haul the building materials to the build site, so the company buys a truck to bring the materials to the location faster. Aside from being physical tools, capital can also be financial assets, referred to as financial capital. Financial capital can be used to buy investments, like stocks, that will eventually grow its monetary (refers to money) value.
Since I talked about entrepreneurship in my small business article, I will only talk about it here briefly. Entrepreneurship is the ability to link the other 3 factors of production together. It allows for the innovation both within and outside of a business. Entrepreneurship is important because they establish new businesses, which drive our economy through the creation of new goods and services.
This concludes the first part of our basic economics series. Thank you for reading, and please subscribe for more content! See you in the next post!