Economics …
John Maynard Keynes (1883–1946), one of the greatest economists of the twentieth century, pointed out that economics is not just a subject area but also a way of thinking. Keynes, shown in Fig. 1, famously wrote in the introduction to a fellow economist’s book: “[Economics] is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions.” In other words, economics teaches you how to think, not what to think.
Many students find the prospect of taking an economics course daunting (or maybe just dull). At the heart of this worry is perhaps just a misperception of what economics is about. It’s not rocket science, it’s not a collection of boring facts, and it’s not the study of money or the stock market. Economics is really just a set of interesting questions organized around a simple fact: There aren’t enough resources (money, land, time, etc.) to go around or satisfy all our needs and desires. Economists call this condition scarcity. It affects individuals, nations, and the entire human species—no one ever has enough of the things they want. On some level, everyone has to grapple with scarcity, and economists are interested in understanding how people do that.
If you understand how people behave in the face of scarcity—and learn to think like an economist—economics can be an amazingly powerful tool. You can predict the behavior of individual economic agents, such as consumers or businesses—what economists call the micro level. You can predict the behavior of an economy (or economies) as a whole—what economists call the macro level. You can have a better understanding of the choices—and consequences—in your own life.
Scarcity
The resources that we value—time, money, labor, tools, land, and raw materials—exist in limited supply. There are simply never enough resources to meet all our needs and desires. This condition is known as scarcity.
At any moment in time, there is a finite amount of resources available. Even when the number of resources is very large, it’s limited. For example, according to the U.S. Bureau of Labor Statistics, in 2016, the labor force in the United States contained more than 158 million workers—that’s a lot, but it’s not infinite. Similarly, the total area of the United States is 3,794,101 square miles—an impressive amount of acreage, but not endless. Because these resources are limited, so are the numbers of goods and services we can produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.
Mindmap – Scarcity and its consequences
Resources
There are four productive resources (resources have to be able to produce something), also called factors of production:
- Land: any natural resource, including actual land, but also trees, plants, livestock, wind, sun, water, etc.
- Economic capital: anything that’s manufactured in order to be used in the production of goods and services. Note the distinction between financial capital (which is not productive) and economic capital (which is). While money isn’t directly productive, the tools and machinery that it buys can be. *Money is not a resource
- Labor: any human service—physical or intellectual. Also referred to as human capital.
- Entrepreneurship: the ability of someone (an entrepreneur) to recognize a profit opportunity, organize the other factors of production, and accept risk.
