BASIC TERMS IN ECONOMICS

GOODS

Is anything which yields satisfaction to someone. It is anything that satisfy a person’s wants and desires.

Tangible GOODS

Goods may be tangible when they are materials or commodities. In a simple sense, these are the materials or commodities that can be touched.

intangible GOODS

Intangible services like those rendered by the doctor the teacher, painter, beautician and even the prostitutes are all used in the satisfaction of human wants and needs.

Goods which are yield directly, just like softdrinks and foods.

consumer

GOODS

capital GOODS

Goods used in the production of other goods and services.

LUXURY

GOODS

These are the goods which man may do without, but are used to contribute to his comfort and well-being.

ECONOMIC

GOODS

Goods which are both useful and scarce. It has a value attached to it and a price has to be paid for its use.

Free

GOODS

Goods that are so abundant that there is enough of it to satisfy everyone’s needs without anybody paying for it.

Means of production

This type of production takes place in factory.

Manufacturing/ industry

This type of production takes place in farm.

agriculture

ECONOMIC RESOURCESEconomic resources are the goods or services available to individuals and businesses used to produce valuable consumer products.

FOUR FACTORS OF PRODUCTION

LandLaborCapitalEntrepreneur

LAND Land is the economic resource encompassing natural resources found within a nation’s economy. This resource includes:

TIMBER

LAND

FISHERIES

FARMS

Although some natural resources, such as timber, food and animals, are renewable, the physical land is usually a fixed resource. Nations must carefully use their land resource by creating a mix of natural and industrial uses. Using land for industrial purposes allows nations to improve the production processes for turning natural resources into consumer goods.

LABOR.

Labor represents the human capital

available to transform raw

or national resources into

consumer goods. 

Human capital includes all able-bodied individuals capable of working in the nation’s economy and providing various services to other individuals or businesses. This factor of production is a flexible resource as workers can be allocated to different areas of the economy for producing consumer goods or services.

Human capital can also be improved through training or educating workers to complete technical functions or business tasks when working with other economic resources.

CAPITAL.

Capital has two economic

definitions as a factor of

production. Capital can represent the

monetary resources

companies use to purchase natural

resources, land and other capital goods.

Monetary resources flow through a nation’s economy as individuals buy and sell resources to individuals and businesses.

Capital does not only include money, it also includes buildings, machinery, raw materials and other physical necessities for the use of production.

Savings refers to the part of person’s income which is not spent on consumption. It is therefore involves a sacrifice because consumption has to be given up for one to save. Capital is therefore an economic good and the owner of the capital earns income for its use. This income is called interest.

For instance, if you bring your money to the bank for deposit, it earns interest because you are actually lending capital to the bank.

Entrepreneur.

Entrepreneurs is considered a factor of production because economic resources can’t exist in an economy and not be transformed into consumer goods without it. He is the person who combines the other resources for use in the production of goods and services. He decides on the combination of land, labor and capital to be used in the production.

TYPES OF ECONOMIC SYSTEM

The Traditional EconomyThe Command EconomyThe Market Economy

The Traditional Economy

This is actually the subsistence economy. A family produces everything that it consumes.

The Command EconomyThis means of production are owned by the government. Its decisions are arrived by planners or government men who dictate what, how, and for whom to produce.

The Market Economy

The basic characteristic of this economy is that resources are privately owned and decisions are made by the people themselves.

It is seldom that a economic system exists in pure form. The United States economy is predominantly market, but it cannot be denied that there exists some form of governmental control. Cuba has best described as command since its decisions are planned by the government; however the price system is also be used, even if only minimally.

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THE PRODUCTION POSSIBILITIES FRONTIER

No. of

papers

(expre

ssed a

s m

illio

ns)

No. of trees to cut (expressed as thousands)

SOCIETY’STECHNOLOGICAL POSSIBILITIES

Since the nation has limited resources, it has to cope by choosing different potential bundles of goods. It has to choose among the production techniques and who will consume the goods ad services it decides to produce. These decisions involves choices on inputs to be used and the outputs to be produced.

Inputs refer to the commodities or services used to produce the good or the service. Existing technology is used to combine these different inputs. Inputs consist of land, labor and capital.

Outputs refer to useful goods and services resulting from the production process. These are goods that are either consumed like shoes, or used further production like machines.

GAMES.Determine whether the picture being shown is OUTPUT or INPUT.

INPUT

OUTPUT

INPUT

OUTPUT

INPUT

OUTPUT

INPUT

OUTPUT