UNIT 1.

BASIC ECONOMIC
CONCEPTS
1.1. FACTORS OF PRODUCTION
FACTORS OF PRODUCTION

Land

Labour

Capital

Enterprise
 LAND

• Natural resources
• It includes all the resources coming from the nature
• Examples: seas, rivers, forests, deserts, minerals from the
ground, gases from the air…
 LABOUR
• Labour = Workers
• Human resources
• Labour includes the physical and mental effort to make goods
and servives
 CAPITAL
• Man- made resources used to produce many other goods and
services
• Examples: tools, machines, computers…
 ENTERPRISE

• The ability to run a business successfully

ACTIVITY
 REWARDS
FOR THE FACTORS OF PRODUCTION

LAND RENT

LABOUR WAGES

CAPITAL INTEREST

ENTERPRISE PROFITS
VIDEO “FACTORS OF PRODUCTION”
• https://www.youtube.com/watch?v=VZD7dTS
HmIo
 ACTIVITIES VIDEO
FACTORS OF PRODUCTION
1. Give the name for the four types of production factors.
2. Why production factors are considered resources for
firms?
3. Explain in detail the production factors used to make
coffee in a bar.
4. Is money considered capital (as a factor of production)?
Explain.
5. Translate the following terms into English: land, labor,
capital enterprise, entrepreneurship, raw material
1.2. GOODS AND SERVICES, NEEDS AND
WANTS
 GOODS AND SERVICES
• A good is something material that satisfies our needs or wants

• A service is an activity that satisfies our needs or wants. It is

no material
 A GOOD…
It is something material that satisfies our needs or wants
 A SERVICE…
It is an activity that satisfies our needs or wants
 FREE GOOD…
• It is any good that is not scarce
• You don’t have to pay a price for it
 ECONOMIC GOOD…
• It is any good that is scarce
• It has been produced by a firm
• You have to pay a price for it
 CONSUMER GOODS

• Durable goods
• Non-durable goods
CAPITAL GOODS
 PUBLIC GOODS

• Goods and services which are provided by a government

because everyone benefits from them, even if they do not pay
for them
 MERIT GOODS
• Goods and services which are provided by a government
because the government thinks that people ought to benefit
from them, even if they cannot afford to buy them
NEEDS AND WANTS
NEEDS AND WANTS
 NEEDS
Needs are essential for survival
 WANTS

They bring pleasure

THE SATISFACTION OF HUMAN WANTS
ACTIVITY
 NEEDS AND WANTS

A B
ACTIVITY 1.3
1.3. THE BASIC ECONOMIC PROBLEM
SCARSITY
THE BASIC ECONOMIC PROBLEM
 THE BASIC ECONOMIC PROBLEM

SCARCITY OF LIMITED GOODS AND UNLIMITED NEEDS

RESOURCES SERVICES AND WANTS
 VIDEO “SCARSITY AND CHOICE”

• https://www.youtube.com/watch?v=yoVc_S_g
d_0
 ACTIVITIES
VIDEO “SCARSITY AND CHOICE”

1. What is the concept of “unlimited needs” about?

2. Do you think everyone has unlimited wants?
3. What´s the problem with having unlimited wants?
4. Some of your resources as an individual are time and money. Are these
limited resources or unlimited resources?
5. What are the resources used for firms? The answer for this question is not
in the video, but you must know from class.
6. By definition, what is “economics”?
7. Is a laptop a free good or an economic good?
8. Is the water from the sea a free good or an economic good?
9. Can you give an example of a decision that´s not rationally self-interested?
10.Translate the following terms into English: unlimited needs, limited
resources, free good, economic good, economics), scarcity, scarce, choice.
VIDEO “MAN AND THE NATURAL WORLD”

• https://www.youtube.com/watch?v=WfGMYd
alClU&t=9s
 ACTIVITY
VIDEO “MAN AND THE NATURAL WORLD”

1. Summarize the video

2. Do you agree with the video?
3. Do you feel like you are like the man showed in the video
in some way? Explain your answer
 VIDEO “MAN 2020”

• https://www.youtube.com/watch?v=DaFRhei
GED0
 ACTIVITY
VIDEO “MAN 2020”

1. Summarize the video

2. Do you agree with the video?
3. What do you think it is going to happen once the
pandemic finishes, related to our style of life?
1.4. ECONOMICS AND ADAM SMITH
 ADAM SMITH VIDEO
• https://www.investopedia.com/updates/adam
-smith-economics/
 ACTIVITIES VIDEO
ADAM SMITH

1. What is Adam Smith important for?

2. Why do you think he is considered to be the father of
Economics?
3. Was Adam Smith for or against Estate intervention in the
economy?
4. What is the name of the main book written by Adam
Smith?
 VIDEO “INVISIBLE HAND”
• https://www.youtube.com/watch?v=ulyVXa-u
4wE
 ACTIVITIES
VIDEO “INVISIBLE HAND”
1. What did Adam Smith think about the role of the
government in the economy?

2. What is “the invisible hand theory” about?

3. What did Hayek believe about the invisible hand? In his

opinion, who should be the visible hand to take the market to
equilibrium?
MACROECONOMICS vs MICROECONOMICS
MACROECONOMICS vs
MICROECONOMICS
 MACROECONOMICS vs
MICROECONOMICS
• Macroeconomics deals with the study of the economy as a
whole. Macroeconomists focus on the national, regional,
and global scales.

• Microeconomics deals with the economic interactions of a

specific person, a single entity, or a company. These
interactions, which mainly are buying and selling goods,
occur in markets. Therefore, microeconomics is the study of
markets.
 MACROECONOMICS

• It is the study of how a nation economy works.

• It involves understanding the interaction between total
demand, total supply, output, employment,
unemployment, inflation, imports, exports…
 MICROECONOMICS

It is the study of the behavior of:

– Individual consumers
– Individual producers
– Particular markets
POSITIVE ECONOMICS vs
NORMATIVE ECONOMICS
 POSITIVE ECONOMICS
• For example:
– A fall in incomes will lead to a rise in demand for own-label
supermarket foods.
• It talks about things that “are”. They are facts. They can be verifiable.
You can test it. And you can find out whether these statements are true
or untrue.

• Positive statements are objective statements that can be tested by the

available evidence.
 NORMATIVE ECONOMICS
• For example:
– Pollution is the most serious economic problem

• They aren’t facts. They are opinions of economists who tell us what
they think. It can be true for some and false for some. And these
statements can’t be tested.

• Normative statements are subjective statements – i.e. they carry value

judgments.
 WE NEED BOTH…
We need both positive economics and normative economics. We need
to know which are facts and then we should use our judgment to form
policies that will help individuals and the society at large.
1.5. MAIN ECONOMIC GROUPS

PRODUCERS
CONSUMERS

GOVERNMENT
 CONSUMERS

• Families, households, individuals…

• Make choices…opportunity cots.
• Main functions:
– Consume goods and services
– Work for firms…
 PRODUCERS

• Firms, companies, suppliers…

• Make choices…opportunity cost
• Main functions:
– Produce goods and services
– Provide jobs…
 GOVERNMENT

• Public Administration, Estate

• Make choices…opportunity cost
• Main functions:
– Regulate
– Provide public services
– Get taxes…
VIDEO “ECONOMY DEFINITIONS FOR KIDS”

• https://www.youtube.com/watch?v=CamHuV
Sm_IQ
 ACTIVITIES
VIDEO «ECONOMY DEFINITIONS FOR KIDS»

1. Which are the three main groups in the economy?

2. What is the main function of each group in the economy?
3. Explain how these three groups relate to the economy.
4. What is meant by a free market economy?
5. What is the name of the system which is totally opposed to
the free market economy?
6. In Spain, do we have a total free market system? Explain your
answer.
1.6. THE CIRCULAR FLOW OF INCOME
 1.7. OPPORTUNITY COST

• When there are some options, opportunity cost is what you

have to give up to get one option.
• For example…if we have a spare piece of land, we can have 2
options…
VIDEO “OPPORTUNITY COST”
 ACTIVITIES
VIDEO “OPPORTUNITY COST”

1. What is opportunity cost?

2. Explain what happens to Monyda in the video. In your
explanation you must use these terms: opportunity cost,
to make a choice, scarce or scarcity.
3. Explain a personal situation where there was an
opportunity cost and where the scarce resource was time.
4. Explain a personal situation where there was an
opportunity cost and where the scarce resource was
money.
5. Translate the following terms into Spanish: opportunity
cost, scarcity, choice.
ACTIVITY
ACTIVITY 1.6
ACTIVITY
ACTIVITY 1.6
1.8. PRODUCTION POSSIBILITY CURVE
(PPC)
PRODUCTION POSSIBILITY CURVE (PPC)
It is a curve or frontier that shows the more efficient
production for a firm or a country.

We need to make some assumptions:

1. It is only possible to produce two commodities.

2. The firm or the country use all the available resources
and technology.
 A PPC FOR A FIRM

• We suppose the firm can choose to produce cars or trucks

or a combination of both.
• We suppose the firm is using all the available resources
and the existing technology
POSSIBLE POINTS OR COMBINATIONS

• All the points along the frontier are efficient.

• All the points below the curve are inefficient
• All the points above the curve are no possible in the short
term
 A PPC FOR AN ECONOMY

• We suppose the country can produce just consumer goods

or capital goods or a combination of both
• We suppose the country is using all the avaiable resources
and technology
 VIDEO “PPC”

https://www.youtube.com/watch?v=nsQi2ipSP2
c
 VIDEO “PPC”

1. What is the purpose of an “economic model”?

2. Which economic model is shown in this video?
3. According to the video, which two goods are produced on the island?
4. Plot the PPC for the island on a graph. Make sure you include the
production combinations mentioned in the video (Draw the graph on
your notebook).
5. What does the PPC represent?
6. Based on the PPC of the island:
a) Give an example of an impossible production combination.
b) Give an example of an efficient production combination.
c) Give an example of an inefficient production combination. Notice that in all
three sections of question 6 there are many more production combinations
possibilities.
1.9. THE THREE KEY QUESTIONS IN THE
ECONOMY
 THE 3 KEY QUESTIONS

What to produce?

??? How to produce?

For whom to produce?

 WHAT TO PRODUCE?
• When there is scarcity one problem is to decide what goods
and services to make and what goods and services not to
make…
• More weapons or more hospitals?
• It is an important decision because it involves which wants to
satisfy and which not
 HOW TO PRODUCE?
• How to make those goods and services?
• What tools?
• How many workers?
• How much land is needed?
• This is an important decision because there is many ways to
make the same thing…
 FOR WHOM TO PRODUCE?
• Because of scarcity not every person wants can be satisfied
• So whose wants to satisfied must be determined.
• Must the production be for everyone? Or must the production
be for those able to pay?
1.10. DIFFERENT ECONOMIC SYSTEMS
BUT, WHAT IS MEANT BY «ECONOMIC SYSTEM»?

It is how a country decides the three key questions:

– What to produce?
– How to produce?
– For whom to produce?
DIFFERENT ECONOMIC SYSTEMS
DEPENDING ON THE GOVERNMENT
ENVOLVEMENT…
 MARKET ECONOMIC SYSTEM
• All the decisions are taken by private sector organitations and
individuals, that is, by firms and consumers.
• There is no role for a government.
• Therefore, no taxes or public spending.
 BUT…WHAT IS A MARKET?
• A market is any set of arrangement that brings together all
the consumers and producers of a good or service so they
may engage in exchange.
• It does not refer to a particular location (no material).
• Today, money is used for exchange. However, in the past
barter was the way.
DECIDING WHAT, HOW AND FOR
WHOM TO PRODUCE…
ACTIVITY 2.3
BUT HOW DO FIRMS KNOW WHAT IS
PROFITABLE?

Profit = Incomes – Cost of production

 ADVANTAGES OF THE MARKET ECONOMIC
SYSTEM

1. A wide variety of goods and services will be produced.

2. New materials, production equipment and methods will be
developed.
3. Firms will respond quickly to changes in consumer wants and
spending patterns.
4. There are no taxes on incomes, wealth or on goods and services.
ACTIVITY 2.4
Activity 2.5
DISADVANTAGES OF THE MARKET ECONOMIC
SYSTEM

1.Firms will only produce goods and services if they are

profitable.
2.Firms will only supply products to consumers who are able to
pay for them.
3.Harmful goods may be produced if it is profitable to do so.
4.Some producers and consumers may ignore the harmful effects
of their decisions and actions on others and the environment.
5.Some firms may dominate the market supply of a particular
good or service.
DISADVANTAGES OF THE MARKET
ECONOMIC SYSTEM
PLANNED ECONOMIC SYSTEM
MIXED ECONOMIC SYSTEM
 VIDEO (12m)

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R_gM&list=PL8dPuuaLjXtPNZwz5_o_5uirJ8gQ
XnhEO&index=1
FILM (2h 1m)