Chapter+01++_Introduction_

Chapter 01_Introdu - Chapter 1 What Do Economists Do We Model for Food Introduction and Review Alfred Marshall a British economist defined

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1 Chapter 1 What Do Economists Do? We Model for Food Introduction and Review Alfred Marshall, a British economist, defined economics as “the study of mankind in his ordinary business of life.” You can study “mankind” with respect to many different attributes. Economics generally analyzes the behavior of people and institutions that arise because of scarcity . Scarcity means that human wants are unlimited in relation to the available resources in the economy. Unlimited wants means that people in general prefer to have more of everything. They want to be able to buy more food, more appliances, better homes, better cars, and so on so forth. Resources are the things we use to produce goods and services. They are also called production inputs or factors of production . Economists distinguish three types of resources: 1. Land . Land is all the resources given to us by the nature. Perhaps “ natural resource would be a better term for this production factor. Land includes land itself that is used in agriculture as well as forests, underground resources, minerals, and underwater resources. If we stretch the definition a bit, we can also include such things as solar energy or wind power to produce electricity in this category. At any given point in time, these are limited in supply. In the long run we might be able to increase their supply somewhat using more efficient cultivation techniques, better fertilizers, new discoveries, and so on. In this book we will generally assume that the amount of land is constant and we will ignore it. This is to keep our stories simple without affecting any of our conclusions. 2. Labor . Labor is human effort. It is measured by the “person-hour.” If we have one worker working 10 hours and another working 5 hours, then the total is 15 person- hours. This resource is limited for two reasons: a. There are a limited number of people in any society over a given period of time. b. Each person has a limited number of hours available to him or her during that time period. 3. Capital . By capital we mean all produced means of production . There are goods that human beings produce in order to use them to produce other goods. They include private capital owned by private citizens, such as trucks, tractors, and manufacturing plants, as well as public capital owned collectively by the public, such as roads, bridges, or national parks. Another capital category is the human capital . By this term economists mean all the knowledge, skills, and expertise acquired and possessed by an individual. This fits the definition of capital because an individual acquires it through education or learning by doing. Scarcity means that with the available resources we cannot satisfy the collective wants of all the members of the society. In other words, if we asked all members of society how much of each goods and service they would like to have if money was no object, we
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2 would realize that we do not have enough resources to produces all those things. We will analyze the question of scarcity more fully in the next chapter.
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This note was uploaded on 10/07/2011 for the course ECON 1A taught by Professor Modjtahedi during the Fall '08 term at UC Davis.

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Chapter 01_Introdu - Chapter 1 What Do Economists Do We Model for Food Introduction and Review Alfred Marshall a British economist defined

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