Chapter 1

The
Introduction
to Economic

© by Nelson, a division of Thomson Canada Limited

In this chapter you will…
 Define what economic is
 Define what scarcity is
 Describe types of economics
 Explain factors of production
 Examine economic systems
 Explain why study economic?

Chapter 1: Page 2
 What is economic?
 Economics is the study of how people,
institutions and society make choices under
conditions of scarcity.
 Economics studies human relationship and
behaviors of people. The most important
units of study in economics are the
behaviors of households, businesses and
government.

Chapter 1: Page 3
 Scarcity defined

 Scarcity means that society has limited

resources and therefore cannot
produce all the goods and services
people wish to have.
 As a household cannot give every
member everything he or she wants.
 A society cannot give every individual
the highest standard of living to which he
or she might aspire/wish.

Chapter 1: Page 4
 Scarce resources, often referred to as
the factors of production.
 Production is the process that
transforms scarce resources into useful
goods and services.
Input > Process > Output
Labor Planning Goods/ Services
Capital Organizing
Material Leading
Technology Controlling
…………… (Transform)
Chapter 1: Page 5
 Factors of Production
 There are 3 main factors of production
such as:
 Natural resources or Land
 Human resources or Labor
 Capital goods or Capital
 Many economists include
entrepreneurship as a fourth factor of
production.

Chapter 1: Page 6
 Natural resources Or Land
 Natural resources are the gifts of nature
such as
 Rivers
 Sunlight
 Fish and other animals
 Natural forests, and
 Soil / Land

Chapter 1: Page 7
 Human Resources Or Labor
 Human resources are the people who
are involved in production including:
 Teachers
 Carpenters
 Electricians
 Economists
Etc., (et cetera)

Chapter 1: Page 8
 Capital Goods or Capital
 Capital goods are items/physical assets
that are designed to produce other products
including: fixed assets, such as buildings,
machinery, equipment, vehicles, and tools.
 Cement mixers, Shopping malls,
 Business computers, Delivery trucks, and
 Office buildings.

Asset = Liabilities + Capital/Equity

Chapter 1: Page 9
 Entrepreneurship
 Entrepreneurship features/has the risk-
taking and innovation of entrepreneurs.

Chapter 1: Page 10
 Two types of Economics
 Microeconomics
 Macroeconomics

Chapter 1: Page 11
 What is Microeconomics?
 Microeconomics is the branch/part of
economics that studies individual
decision-making units, such as a
consumer, a worker, or a business firm.
 The most important participants in the
microeconomics are households, business
firms, and the government.

Chapter 1: Page 12
 What is Macroeconomics?
 Macroeconomics is the branch of
economics that deals with the economic
performance.
 Macroeconomics focuses on economic
growth and economic stability in a nation.

Chapter 1: Page 13
 Economic System
 Societies develop economic systems to
solve their economic problem.

Chapter 1: Page 14
The Command System
 In a command system ( socialism or
communism):
 Government owns most factors of
production;
 Economic decisions are made by a
central governing body.

Chapter 1: Page 15
The Market System
 In a market system (capitalism):
 Factors of production are privately owned;
 Participants act in their own self-interest
resulting in competition among
independent buyers and sellers of each
product and resource.

Chapter 1: Page 16
Why Study Economic?

Chapter 1: Page 17
Why Study Economic?

Chapter 1: Page 18