Economics 101: Understanding Needs and Wants

What is Economics?

• Economics is a science that helps make choices between unlimited needs and wants with limited resources efficiently and effectively.
• It identifies how to satisfy unlimited wants by using limited resources.
• Economics is the process of allocating limited resources among unlimited needs and wants.

Needs and Wants

• Needs are essential for human survival, e.g., water, food, clothes, shelter.
• Wants are different ways of satisfying needs, e.g., tap water, mineral water, cool drinks, juices, and hot drinks.

Resources

• Resources are things used by humans to satisfy needs and wants.
• There are two types of resources: non-economic and economic resources.

Non-Economic Resources

• These resources are consumed without payment, e.g., sunshine, water from a river.
• Consumers cannot be excluded from consumption if they don't pay.

Economic Resources

• These resources require payment for consumption, e.g., laptop, mobile phone, food, and pen.
• If consumers don't pay, they will be excluded from consumption.

Types of Economic Resources (Factors of Production)

• There are four basic types of economic resources:
  • Land
  • Labor
  • Capital
  • Entrepreneurship/Enterprise

Land

• Land includes all natural resources used in production, e.g., water, oil, gems, diamonds, and bare land.
• Payment for land is rent.

Labor

• Labor includes physical or mental effort generated by humans to produce goods or services, e.g., doctor, teacher, laborer, engineer, carpenter.
• Payment for labor is salaries or wages.

Capital

• Capital includes all man-made resources used in production, e.g., computers, buildings, machinery.
• Man-made resources can be consumption goods or capital depending on their use.
• Payment for capital is interest.

Entrepreneurship

• Entrepreneurship involves bringing all other factors of production together to produce something, e.g., owner in a private hospital, owner of a private school.
• Payment for enterprise is profit or loss.

Learn the fundamentals of economics, including the definition of economics, the importance of resource allocation, and the distinction between needs and wants.