Chapter 1: Basic Economic Concepts

Chapter 1: Basic Economic Concepts

The Factors of Production

? Economists classify resources into 4 categories: ? Land ? Natural resources ? The payment for land is rent

? Labor ? Human resources ? The payment for labor is wages

The Factors of Production

? Capital ? Tools, machines, & factories ? The payment for capital is interest

? Entrepreneurship ? Combines land, labor and capital in new ways in order to make profit ? The payment for entrepreneurship is profit

Scarcity

? Economics, simply put, is the study of scarcity ? Scarcity exists because individuals want more than can be produced

Marginal Cost and Marginal Benefit

? Marginal cost: the additional cost (above incurred costs) ? This does not include sunk costs--costs that are incurred and cannot be recovered

? Marginal benefit: the additional benefit (above the current benefit)

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