Economics: a method for deciding how to use scarce resources to achieve goals
Principle #1: People choose; there is no such choice as a free choice.
Objectives:
Define economics as a method for deciding how to use scarce resources to achieve goals
Define goals as things and activities that you want to have or do.
Define resources as things that can help you achieve your goals
Recognize scarcity as the imbalance between resources and goals
Identify time (human capital hours) as a unit of measure, not a resource
Identify money as a means of transferring your resources to the things you want to have and do
Distinguish between economics and finance
Why do you want to learn this? More informed decision maker, student of history, student of current events, informed voter
This course is meant to help you empower yourself to use economic reasoning to achieve your goals. Economic reasoning is a skill, and like all skills, it must be practiced. If you play a sport, you practice for games. If you play a musical instrument, you practice for performances. If you use economic reasoning, you practice making informed decisions. That is what this course is about. Throughout the course, you will have opportunities to practice your decision-making skills and you will evaluate yourself in terms of how well you are developing those skills.
Welcome to economics. At this point, I’m pretty sure that you might have an incorrect impression of economics. It is not mainly about money. It is not about the stock market. It is not boring. It is not irrelevant. In fact, this may be the most important course you take in high school because it is mainly about you and about empowering you.
If you have goals, you can use economics. Goals are things or activities that you want to have or do. You might have an idea of the kind of life you want after high school. I assume you want a house, a car, clothes, vacations, entertainment, a job that is fulfilling and plenty of things and activities I haven’t listed. You may want to learn a new language or master a new video game or contribute to your church or school or other community organization. All of these are goals.
Resources are things that can help you achieve your goals. Resources are usually divided into four categories. Natural resources are things given to us by nature such as forests, oil, minerals, water, and many others. Human capital is you and the skills, knowledge, experience, and personal qualities that help you achieve your goals. Physical capital includes things that are made for the purpose of producing other goods and services such as tractors to help grow crops, buildings such as your classroom to help produce education, computers to help produce knowledge and entertainment. Entrepreneurship is the ability to combine the other resources in new and different ways for the purpose of earning a profit. Entrepreneurs with whom you may be familiar are Bill Gates, Famous Amos the cookie guy, and Madam C.J. Walker who developed beauty products for African American women. Local entrepreneurs include Ray Croc who founded McDonalds with the first restaurant located in San Bernardino, Albert Okura who established the Juan Pollo restaurant chain, Chuck Obershaw who was the original owner of Toyota of San Bernardino, and Neal Baker who founded Baker’s with his first hamburger stand located in San Bernardino.
Time is NOT a resource; it is a unit of measure. Human capital hours
The Greek philosopher Antiphon stated that time is not a reality, but a concept, or a measure. If you rent a lawn mower for an hour, you haven’t rented the hour, you have rented the lawn mower. If you mow the lawn for an hour, it isn’t the hour that has mowed the lawn, it is you...your human capital. Human capital includes Your combination of skills, knowledge, experience, and personal qualities; but much more of that in the next summary. If you work for three hours and your boss pays you $15 per hour, she isn’t paying you for three hours, she is paying you for the use of your human capital for three hours. We call those hours human capital hours (hch). The hours are a measure of how much of your human capital she has used.
Time alone can’t measure your human capital. If you ask your six year old sister to help you mow the lawn, she will not be able to do as much of the lawn as you, nor is she likely to do the same quality job as you. Human capital hours measure of the quantity of your human capital used but not the quality of your human capital.
Money is also not a resource. Money is simply a way of transferring your resources (for most of us our most valuable resource is our human capital) into the goods and services we want to achieve our goals. We will develop this idea further in later lessons.
Scarcity is the relationship between our goals and our resources. You can’t have everything you want. Here is the problem: our resources (in your case mainly your human capital) are insufficient to satisfy all of your goals. You might want many things that “you can’t afford.” The reason you can’t afford them is because you don’t have enough money. But the reason you “don’t have enough money” is because you have too little human capital to earn the money to buy the stuff you want. It all comes back to resources, mainly your human capital. Scarcity tells you that you can’t have everything you want. The way to deal with this situation is to improve your human capital…or win the lottery. The human capital approach is more likely to help you succeed!
What is Economics? You know what goals and resources are and you know that you don’t have enough resources to have or do everything you want. How do you decide how to use your scarce resources to maximize your happiness? Economics is a way of thinking that helps you decide how to use your resources (mainly your human capital) to achieve your goals. You have made many decisions throughout your life and are going to make many more. Economics can help you make informed decisions about what to do on Saturday evening, what to do after high school, what kind of job/career is right for you. As a society, economics can help us make many decisions about how to use our resources to minimize world hunger, promote world peace, provide quality education, deal with endangered species, drug abuse, public safety, the environment and much more. As mentioned above, Economic reasoning is a skill, and like all skills, it must be practiced. If you play a sport, you practice for games. If you play a musical instrument, you practice for performances. If you use economic reasoning, you practice making informed decisions. That is the focus of this course.
Finance is an application of Economics. Economics is a skill that helps people decide how best to use their resources to achieve their goals. Personal finance is the application of economic reasoning to acquiring and managing financial resources. Should I pay cash for this purchase, or should I put it on the credit card? Should I invest in this stock or that stock? Should I rent an apartment, or should I buy a house? Should I buy a car or should I lease? Should I go to a community college, or should I go to a trade school? All of these are decisions that involve money (finance) and economic reasoning can be applied to help inform these decisions. As soon as you say the word “decision”, you are speaking economics, whether that decision involves money or not. Once money is involved, you are applying economic reasoning to a financial decision.
Bottom Line: Economics is about three things – goals, resources, decisions. Economics will empower you to make decisions about using your scarce resources (mainly your human capital) to achieve your goals. There is no such decision as a non-economic decision. Decisions involving money are economic decisions applied to finance. If you give economics a chance, this course can be a life changer for you. It can help you make decisions in every aspect of your life.
Evaluation: Can you define economics?
1. Which of the following is NOT included in the definition of economics?
a. Goals
b. Decisions
c. Money
d. Resources
2. Which of the following is NOT a resource?
a. Human capital
b. Time
c. Entrepreneurship
d. Physical capital
3. What units measure the quantity of human capital used in an activity?
a. Hours
b. Seconds
c. HCHs
d. None of the above
4. Which of the following three words are included in a definition of economics?
a. Goals, money, decisions
b. Resources, time, decisions
c. Goals, resources, decisions
d. Time, money, decisions
5. The relationship between goals and the resources to achieve those goals is called:
a. Shortage
b. Scarcity
c. Surplus
d. Insufficiency
6. Which of the following is NOT an economic decision?
a. What to do with your human capital after high school
b. What to do with your savings?
c. Whether to get married or not
d. All of these are economic decisions
7. Which of the following economic decisions would also be considered a financial decision?
a. Take a walk in the nearby woods or watch television
b. Go to your sister’s soccer game or swim at the public pool
c. Save nothing or save 10% of your income
d. Rest and relax or rake the yard