Econ 160, Vardanyan
Introduction: What is Economics?
What is Economics?
is the study of choices made by people who are faced with scarcity.
is a situation in which the resources are limited and can be used in different ways, so one
good or service must be sacrificed for another. For example, the time that you have
during a given day is limited to 24 hours, so that when you spend more time in a gym
you’ll have less time left to read a book. Similarly, every country has a limited amount of
resources (land, capital, etc.), so when more of these resources is spent on the production
of tanks less will be available for the production of food, clothing, TV sets, etc. Thus,
economics is the science about the best ways of allocating scare resources
What products do we produce in an economy? How are these products being produced?
Who consumes these products? The goods (such as cars, pens, books, etc.) and services
(such as services of lawyers, doctors, educators, etc.) are produced using
, which are also called
. They are
Natural resources – resources created by acts of nature, including land, water,
deposits of oil, gas, and minerals
Labor – human effort, including physical and mental effort used to produce
goods and services
Physical capital – human-made tools used in the production of goods and
services, such as computers, hammers, roads, etc.
Human capital – knowledge and skills acquired through education and
training, i.e. the expertise possessed by surgeons, musicians, and operators of
heavy machinery. Education can be thought of as a way of enhancing one’s