1.1 An Economic Way of Thinking

Introduction to Economics – Gr. 12

Text: Holt EconomicsMr. Ahmed Keshk

ECONOMICS is the study of the choices that people make to satisfy their needs and wants and the person who studies these is called an ECONOMIST.

There are 2 classifications in the study of economics: Microeconomics: The study of choices made by

economic actors such as households, companies, and individual markets, e.g., production at Exxon Mobil Corp.

Macroeconomics: The study of behavior of entire economies, e.g., unemployment in an entire nation.

What can you learn from economics? By examining the economic choices you

make, you can take advantages of opportunities available to you and make better choices on how your time and money is spent.

An economic way of thinking. Economists observe not only who makes

economic decisions, but also how they are made.

In economic terms, there are two large groups of decision makers:

Consumers: People like YOU who decide to buy things – they CHOOSE what to buy.

Producers: People who make the things that satisfy consumers' needs and wants

– they CHOOSE what to provide to consumers and how. This network of decisions is the basis of all economic

systems. Every society, whether a neighborhood or a nation, has an economic system.

Economic choices are made based on needs and wants which reflect desires for certain goods and services.

Humans have basic needs – goods and services necessary for survival like food, clothing, and shelter. But many of us have several wants -  goods and services that people consume beyond what is necessary for survival.

For example, we need food, but want Burger King; we need clothing, but want designer jeans; and we need shelter but want a large villa inside Kattameya Heights.

 Economic decisions also focus on goods and services: Goods: Physical (tangible or touchable) objects that can be

purchased, e.g., a pizza, a bicycle, a sofa, and a chocolate bar.  Services: Actions or activities (unseen) that are performed for

a fee, e.g., lawyers, plumbers, doctors, and teachers. Products: Often refers to both goods and services

Economic decisions are made by consumers who decide what to buy and producers who decide what to sell.

These decisions are made based on needs and wants, but also based on the available resources for the production of desired goods and services.

A resource is anything that people use to make or obtain what they need or want. Resources that can be used to produce goods and services are called factors of production. Economists divide these factors of production into four categories:

Natural Resources. Human Resources. Capital Resources. Entrepreneurship.

They are items provided by nature that can be used to produce goods and to provide services. They can be found on or in earth or in the atmosphere, e.g., land, rivers, sunlight, rain.

A natural resource is considered a factor of production only when it is scarce and some payment is necessary for its use, e.g., free air for breathing vs bottled air for scuba diving.

Any human effort, either physical or intellectual, that is exerted during production is considered a human resource, e.g., assembly-line worker, ministers, and store clerks.

Manufactured materials used to create products. capital goods (buildings, structures, machinery, and

tools used in production) Financial capital (money used to purchase them)

The finished products they are used in making are called consumer goods.

Consider a bike used for personal use vs a bike used for pizza

Technology is the use of technical knowledge and methods to create new products or improve the efficiency of existing products, e.g., computer technology has dramatically changed how work is done.

It is the combination of organizational abilities and risk-taking involved in starting a new business or introducing a new product. Its goal is to develop a new mix of the other factors of production, thus, creating something of value. The person who attempts to start a new business or introduce a new product risking economic failure in return for possible financial gain is called an entrepreneur (see Dell's example on Page 7).

In pairs, read the article on page 6 and complete the “What do you think?” questions.

We will share when you have finished.