Basic economic activitiesjuliohuato@gmail.com

Topics Basic economic functions of a human society Production and consumption; their inputs

and outputs Goods (bads), products, wealth, and welfare Ideal content (technology) and physical form

of all products The natural environment (natural resources)

A human society

Definitions Production: making of goods Consumption: use of goods Goods: Whatever humans regard as good,

whatever enhances welfare Products: The outputs of production (good or

bad) Bads: Negative goods Wealth: stock of goods at a point in time Output: flow of products over a period of time Welfare: human wellbeing

Definitions Inputs of production:

Natural resources (T) Produced means of production (K)

Capital goods Intermediate goods

Labor power (L) Waste

Outputs of production: Consumption goods (CG) Produced means of production (K) Waste

Definitions Inputs of consumption:

Consumption goods Waste

Outputs of consumption: Individual human beings

Labor power (L) Welfare

Waste

Notes Not all goods are products (e.g. natural resources are

goods, but not products) Not all products are goods (e.g. waste is a product and bad) In some cases, production and consumption coincide in

time (e.g. transportation, haircuts, etc.) T is an input of consumption as well All products are ideal in content and material (or physical)

in form The ideal content of goods is called technology Technology is like a cooking recipe: lists of ingredients (i.e.

inputs: T, K, L) and describes how to mix them up to produce a given product

Notes Welfare and labor power results from

consumption – but also from production (or, if you prefer, only from consumption, but including the consumption that coincides in time with production)

A sustainable interaction with the rest of nature is increasingly a necessary product we need to produce

“Scarcity” (of goods, resources, etc.) means simply that our productive power is finite

Productivity and cost Productivity = output/input Cost = input/output

Example: 2 workers x 2 hours of labor to produce 1 clean kitchen

Productivity = ¼ kitchen/hour of labor Cost = 4 hours of labor/kitchen