Introduction to Economics
Basic Concepts
Economy
Economics deals with how to manage scarce resources to produce and distribute goods and services for consumption among members of society.
Needs
Needs are the feeling of lacking something, coupled with the desire to satisfy it. Needs are relative because individual desires are not fixed.
Types of Needs:
- Individual: Natural, such as food.
- Social: Related to living in society, such as celebrations.
- Collective: Needs that surpass the individual and pertain to society, such as transportation.
- Public: Needs arising from the company itself, such as public policy.
- Primary: Essential for the preservation of life, such as food.
- Secondary: Increase the individual’s welfare and vary according to time, such as tourism.
Goods
Goods are anything that directly or indirectly meets human needs.
Types of Goods:
- Free Goods: Abundant and cannot be bought or sold, such as air and sunlight.
- Economic Goods: Scarce in relation to the desire to obtain them. These goods can be appropriated.
- Producer Goods: Used in the production process and do not directly address human needs.
- Consumer Goods: Intended for the direct satisfaction of needs. They can be durable (e.g., clothing) or immediate (e.g., food).
- Intermediate Goods: Must undergo further changes before becoming consumer or production goods.
- Final Goods: Have undergone the necessary changes for use or consumption.
- Private Goods: Privately owned and produced.
- Public Goods: Consumption is carried out simultaneously by several individuals.
Economic Activity
Economic activity is any process by which we obtain products, goods, and services that meet our needs.
Stages of Economic Activity:
- Production: The creation and processing of goods and products, including design, processing, and financing offered by banks.
- Distribution: Makes goods and services available to consumers.
- Consumption: The final stage of the economic process.
Factors of Production
Factors of production are the basic resources used in producing goods and services.
- Land: Used in a broad sense, encompassing both agriculture and natural resources.
- Labor: The physical and mental abilities of humans involved in the production process.
- Capital: Buildings, factories, machinery, equipment, and other property used in production.
Economics as a Social Science
Economics studies the relationships involved in the production, exchange, distribution, and consumption of goods and services, understood as a means of satisfying human needs and the outcome of individual and collective society.
Branches of Economics
- Positive Economics:
- Descriptive Economics: Describes economic reality and systematically observes the behavior of various actors, providing statistical data.
- Economic Theory: Formulates categories, principles, theories, laws, and models based on descriptive economics.
- Normative Economics: Based on personal value judgments and provides prescriptions for action based on what is considered desirable.
- Microeconomics: Analyzes the behavior of individual economic units, such as families or consumers and businesses, and the markets where they operate.
- Macroeconomics: Focuses on the overall behavior of the economic system, reflected in variables such as total output, employment, investment, and consumption.
History of Economic Thought
The history of economic thought studies the intellectual efforts to understand and explain economic phenomena.
Key Periods and Schools of Thought
- Ancient Greek Thinkers: Analyzed economic organization in an ideal city and distinguished between trade for the exchange of goods and trade for profit.
- Scholastics (Middle Ages): Focused on ethical issues such as poverty, charity, the right price, and the relationship between profit, interest, and usury.
- Mercantilism (16th-18th centuries): Advocated for a trade surplus and the accumulation of wealth through exports.
- Physiocracy (18th century): Emphasized the importance of agriculture and the free market.
- Classical School (late 18th – mid 19th centuries): Promoted free trade and the importance of individual self-interest and competition.
- Marxism (19th century): Critiqued capitalism and its exploitation of labor.
- Neoclassical Economics (late 19th – 20th centuries): Focused on individual agents and their decision-making, emphasizing the role of supply and demand.
- Keynesianism (20th century): Highlighted the role of government intervention in stabilizing the economy and promoting full employment.
- Monetarism (20th century): Emphasized the importance of controlling the money supply to manage inflation.
- Neoliberalism (late 20th – 21st centuries): Advocated for free markets, deregulation, privatization, and reduced government intervention.
Economic Systems
An economic system is a mechanism that organizes production, distribution, and consumption in a society.
Economic Objectives
- Efficiency: Making proper use of resources to achieve desired results.
- Equity: Fair distribution of income and participation in production.
- Stability and Growth: Avoiding sudden fluctuations in economic variables and promoting increased production over time.
Microeconomics
Microeconomics studies the economic behavior of individual agents and markets.
Key Concepts in Microeconomics
- Taylorism: Scientific management and the division of labor to increase productivity.
- Fordism: Mass production and the assembly line.
- Toyotism: Flexible production, just-in-time inventory management, and teamwork.
- Demand: The quantity of goods and services consumers are willing to buy at different prices.
- Supply: The quantity of goods and services producers are willing to offer at different prices.
- Economic Equilibrium: The point where demand and supply are equal.
- Company: A socio-economic unit that coordinates resources to produce goods or services for profit.
- Salary: Payment received by a worker for their labor.
- Unions: Organizations of workers that advocate for their interests.
- Capital: Goods used to produce other goods.
- Interest: Profit or income produced by capital.
- Income: Net increase in wealth.
- Supply Curve: Graph representing the relationship between price and quantity supplied.
- Demand Curve: Graph representing the relationship between price and quantity demanded.
- Population: The number of individuals in a given area.
- Productive Resources: Resources available for the production of goods and services.
- Marginal Propensity to Save: The ratio of the increase in saving to the increase in income.
- Marginal Propensity to Consume: The ratio of the increase in consumption to the increase in income.