Tuesday, August 16, 2011

Fun Econ

(In college 200 level courses where called Fundamentals of subject, so we called them Fun)

Fundamentally, economics is about the management of scarcity. You only have so much goods, and time, and you need some plan for utilizing them. That's it.

The basic input to the economy is work, human labor. Now, God created work in the beginning, before the Fall. So work is good. However, the Fall has cursed it. For now, work is unpleasant and people need some motivation to work.

The measure of effective work per person is called "productivity". When economists talk about "productivity increase" they mean the same amount of people are doing more work, or fewer people are doing the same amount of work.

The bare minimum is "sustenance farming". This is where everyone produces everything they need. There is little or no trade, and no opportunity for specialization. With low population density, life can actually be pretty relaxed (I recall hunter gatherers had the shortest work day). Productivity is very low, since everyone must each learn every possible task. Also, individual talent is not utilized to the fullest (if I am good at growing plants, but poor at managing animals - I still spend time doing both).

Specialization requires trade (I produce only goats, and I need wheat). And trade works much better with currency (money). I have a cow and want shoes. I can't use 100 shoes, and I don't want to give up the cow for less. I can sell the cow to a third party for money, and use some to buy shoes.

Capital is the means of production (it can also refer to large investments of money). This might refer to land or animals, factories, etc.

Production can be of durable goods (things that last, perhaps further means of production - a factory that produces factory parts), or consumables (things used up; food, paper towels). There is also service - things like waiters and cooks, accountants, etc. And energy (gasoline, electricity).

A "good" is anything produced for the economy. It is usually reserved for physical items, but might be used for anything. There are no "bads", but any production has waste outputs and often "externalities" (negative side effects which fall on third parties).

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