Economic Principles: Resources, Needs, and Market Dynamics
Resource Scarcity and Unlimited Wants
Human Needs and Classifications
Types of Needs
a) Based on Importance of Satisfaction
- Primary Needs: Essential for survival.
- Secondary Needs: Enhance well-being.
c) Economic Interest
- Economic Needs: Satisfied with limited resources.
- Non-Economic Needs: Satisfaction doesn’t require economic activity.
d) Maslow’s Hierarchy of Needs (Pyramid)
- Self-Realization
- Self-Esteem
- Social Needs
- Safety Needs
- Physiological Needs
Goods and Classifications
- Free Goods: Unlimited availability (theoretical).
- Economic Goods: Scarce, with alternative uses.
- Consumer Goods: Ready for direct consumption.
- Investment Goods: Used to produce other goods.
- Single-Use vs. Durable Goods: Single-use are consumed once; durable goods can be used repeatedly.
- Public Goods: Available to all citizens.
- Private Goods: Belong to an individual or group.
- Complementary Goods: Used together to satisfy a need.
Productive Factors
Land
- Arable Land
- Developable Land
- Forest and Livestock Land
- Mining and Quarrying Land
- Unproductive Land
Labor
Labor Categories
- Intellectual and Physical Labor
- Management Labor
- Research Labor
- Execution Labor
- Control Jobs
- Supplementary Labor
Capital
- Private Capital: Household capital for income generation.
- Corporate Capital: Used by companies for production or services.
- Fixed Capital: Durable means of production.
- Capital Assets: Non-renewable means of production.
- Financial Capital: Funds for acquiring components.
- Human Capital: Workforce skills and experience.
The Company: Economic Production Unit
Companies provide goods and services to society.
- Employer
- Workers
- Capital
- Company Entity
- Choice of Economic Activity
Company Classifications
a) Based on Definition
- Industrial: Processing companies.
- Commercial: Buy and sell goods for profit.
Market Economy System
Decisions on allocation and distribution are made independently, coordinated by prices.
Supply and demand drive sales in the market.
Resource Allocation
- Consumers: Maximize welfare within resource and price constraints.
- Firms: Maximize profit within technology and price constraints.
Market-Determined Prices
- Market Self-Regulation (Invisible Hand): Self-interest drives production and consumption decisions.
- Supply and demand determine prices, indicating shortages or surpluses.
Goods Market
How to Produce?
Companies compete on quality and price, driving efficiency.
What to Produce?
Companies produce profitable goods and services that meet consumer needs.
Income Distribution in Factor Markets
Purchasing power influences participation in production and distribution.
Business Activity Cycles
- Assets: What the company owns.
- Liabilities: What the company owes.
Assets include property and rights used in business operations.
Fixed assets are long-term holdings.
Maturation Period
- Purchase of Raw Materials
- Storage of Raw Materials
- Production Phase
- Storage of Finished Products
- Sale
- Collection
- Compensation for Productive Factors
Company Profit Formation
Profit is realized through operational cycles and can be embodied in various assets.
Distributed profits are called dividends.