What is

ECONOMICS
?
Free Goods vs. Economic Goods
FREE GOODS ECONOMIC GOODS

Both have utility.

From nature Man-made

No price With price

Without exchange value With exchange value

No opportunity cost With opportunity cost

 Economic Bad
People pay for to avoid.
 Normal Goods vs. Inferior Goods
NORMAL GOODS INFERIOR GOODS

As income rises, demand As income rises, demand

increases. decreases.
Veblen Goods
• Thorstein Veblen
• A.k.a. Thorstein/Giffen goods
• Commodities that function as
positional goods
• A product that people
consume more of as the price
rises and vice versa
Engel’s Law
• Engel's Law states that
as income rises,
percentage of income
spent on consumption
rises slower as
compared to rise in
income.
 Public Goods vs. Private Goods
Public Goods Private Goods

NON-EXCLUDABLE: Non-payers can enjoy Excludable: Benefit is confined only to

the benefit of consumption at no financial those who paid for it.
cost to themselves.

NON-RIVAL CONSUMPTION: If supplied Rival: Once supplied to one person, it

to one person, it still is available to all. cannot be supplied to another. A party’s
The marginal cost of supplying it to an enjoyment of the good diminishes
extra person is zero (0). another’s enjoyment.
NON-REJECTABLE: Cannot be rejected Rejectable: Can be refused.
once supplied.
HUMAN NEEDS AND WANTS
 Basic Needs
Those that are essential to life.
 Needs Essential to
Decent and Comfortable Living
Those that are not essential to life,
but would make it more
enjoyable.
 Luxury
Those that are neither basic nor
essential to decent and
comfortable living.
Public Needs
Private Needs
 The labor, capital,
land and natural resources,
and entrepreneurship
that are used to produce
goods and services.
 LABOR

The time
human beings
spend
producing
goods and
services.
 CAPITAL
• A long lasting tool that we produce to help us
make other goods and services.
• Two different types: PHYSICAL and HUMAN
• The capital stock is the total amount of capital
at a nation’s disposal at any point in time. It
consists of all physical and human capital
made in previous periods that is still
productively useful.
Physical Capital
• The part of the capital stock
consisting of physical
goods, such as machinery,
equipment and factory
buildings, computers, and
even hand tools like
hammers and screwdrivers.
• These are all long lasting
physical goods that are
used to make other things.
 Human Capital

Consists of the skills and

knowledge possessed by workers.
LAND
The physical space on
which production
takes place, as well as
useful materials –
natural resources –
found under it or on it,
such as crude oil, iron,
coal, or fertile soil.
 Entrepreneurship
• The ability (and the willingness
to use it) to combine the other
resources into a productive
enterprise.
• An entrepreneur may be an
innovator who comes up with
an original idea for a business
or a risk taker who provides his
own funds or time to nurture a
project with uncertain rewards.
 RESOURCES vs. INPUTS
• Input is anything (including a resource) used
to produce a good or service.
• Inputs include not only resources but also
many other things made from them (cement,
rolled steel, electricity), which are, in turn,
used to make goods and services.
• Resources, by contrast, are the special inputs
that fall into one of four categories: labor,
land, capital, and entrepreneurship.
DOUGLASS NORTH
• Douglass Cecil North (born
November 5, 1920);
• An American economist known
for his work in economic history;
• Co-recipient (with Robert William
Fogel) of the 1993 Nobel
Memorial Prize in Economic
Sciences.