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

Normal for the well off. Normal for the poor.

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
 Public Goods vs. Private Goods
Public Goods Private Goods

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

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

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

to one person, it still is available to cannot by supplied to another. A
all. The marginal cost of supplying it party’s enjoyment of the good
to an extra person is zero (0). diminishes 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
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.
 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.