Economics
simplified
Douglas Marchbanks
New Edition
Text and diagrams copyright © Douglas Marchbanks 2012
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Introduction
My name is Douglas Marchbanks. This series is designed for those who are about to begin a course of study at university or for those who have little or no knowledge of economics and who want to know about it. Understand these key concepts and you will have a head start and should find it easier to absorb what you need to learn in future.
Economics is unfortunately not given the priority in many schools as it should be. Many schools do not have the qualified and enthusiastic teachers available to teach. Academic economists often enjoy spending time on research as opposed to teaching the subject. I can understand this. It is not always easy to teach. As a consequence, some students worldwide drop the subject very early on, which can be a complete waste of everybody’s time. That is a shame for the students and for the economy because economics as a subject is not just one of those to learn and to pass exams and then forget about, but one that can genuinely be applied in life. It doesn’t guarantee you wealth but should make you understand why there are rich and poor and can show you the way forward.
However, I enjoy teaching the subject and that’s what I specialise in. My attitude has always been to explain the key concepts carefully, get students to focus in on them, and thus make it easier for students to relate the concepts together with each other later on in their studies.
With the best will in the world not everyone can listen to people like me in class. This is the nearest thing. Through this series you will discover the same kind of things that you would if you were beginning a first year university class of mine. Pretty good value I should say.
Enjoy learning the key concepts of economics in simplified form with me, Douglas Marchbanks.
Let’s get started.
We tend to split economics into two major sections. Micro economics which is to do with how individuals and firms operate and macro economics which is about how governments operate and about the causes and cures of problems such as unemployment, inflation, that’s rising prices, and about taxation, trade and wealth distribution. The type of economics that you hear in this series is often called ‘positive economics’. That doesn’t mean that it is the opposite of negative but it means that it doesn’t involve value judgements. We tend not to say what people, firms or governments should do, just what is likely to happen if they do.
We tend to provide options for decision makers. We explain the tools and how they work but they have the choice of how they use them to reach their goals.
In this book we start on microeconomics, the behaviour of individuals and firms. This is a great place to start. Not only will we learn the building blocks of the subject but we learn to use them to solve problems. Economics is about problem solving. And choice. We can also use the concepts that we learn in micro economics to help solve macro economic problems which we explain in later on in this e-book.
Factors of Production
First, the difference between wants and needs. Normally wants exceed needs. Most of us can think of all kinds of things that we would like to have or use. From a world perspective this is a problem because resources are limited but our wants are more or less unlimited. That’s why we need choice. We need to choose as individuals, firms need to choose and governments need to choose. Let us see how we can do it. First let us look at resources. For convenience we divide things into four categories. In no particular order these are:
Land, that we consider to include all natural resources, not just the soil. Fish in the sea counts as land. Oil under the sea counts as land.
Labour, both physical and menta.
Capital which includes money and machinery, and
Enterprise which is the factor that uses the other factors in order to create output and wealth. Half a century ago people included enterprise within the labour factor but most now consider it to be a factor on its own.
If you own any of the factors and let others use it you receive something. Land receives rent, Labour receives wages, Capital receives interest and Enterprise receives profit – that is if the firm operates properly and there is a demand for the product or service. The more that the owners of these factors of production lend out, the more that they get back in return. Now not everyone owns land, not everyone has money, not everyone has shares in a business but even if we own nothing else, we all have our own factor of production, Labour. So we all have a stake in the system.