The portal has been deactivated. Please contact your portal admin.

Lesson Video: Basic Economic Concepts Economics

In this video, we will learn how to compare different types of needs, resources, and goods and describe the effect of needs on economic activities.

15:35

Video Transcript

In this lesson, we will learn how to compare different types of needs, resources, and goods and describe the effect of needs on economic activities.

Economic issues are pervasive in our society. Every day we encounter news about fluctuations in stock prices, government policies to alleviate poverty, and many other things. These are important and complex issues which profoundly impact our lives. And in order to understand these topics well, we need to first understand the basic economic ideas.

In fact, these issues reside much closer to us than we realize and begin with individuals. Companies, governments, and international organizations are in fact larger economic identities whose basic building blocks are individuals. At the heart of any economic issue lie the needs and wants of individuals. This makes sense because if people do not need or want for anything, there would be no economic activity. So these are the basic driving force of all economic activities and we should take great care to understand their characteristics.

At this point, it’s worth noting that in the study of economics, we often use terms that have a slightly different meaning to their normal connotations. We will endeavor to define these really clearly throughout the course of this video.

So, let’s define what we mean by needs in economics. A need of an individual is a feeling of distress which leads the individual to act to diminish or satisfy that need. Now, this definition is quite general. We might take a moment to reflect on needs in our own lives. For instance, we all have a need for food, and we also need education. They are both needs, although one is necessary for our survival, whilst the other is not as urgent. This means we can categorize needs even further.

Primary needs are needs that are essential for survival, so food is known as a primary need. Secondary needs achieve happiness of the individual or improve the condition of the society, so education is an example of a secondary need. These are sometimes also referred to as wants.

Let’s demonstrate how to identify a primary need in our first example.

Which of the following is a primary human need? (A) Justice, (B) shelter, (C) wealth, (D) security, or (E) education.

Remember, a need of an individual is a feeling of distress that leads the individual to act. Primary needs in particular are needs that are essential for the individual’s survival. So, let’s look through each of the five options and establish which of these are essential for the survival of a person. Justice is not essential for survival, but it does improve the condition of society. This means it is an example of a secondary need. Shelter, however, is essential for survival. This is an example of a primary need. The absence of shelter would lead to a lower chance of survival.

The remaining three options — wealth, security, and education — are not essential for survival. They do serve to achieve the happiness of individuals or to improve the condition of society, so they are all secondary needs. So in this case, the correct answer is (B). Shelter is an example of a primary need.

In our previous example, we looked at examples of human needs and identified which one was a primary need. While the needs listed in that example were common for all individuals, each individual has unique needs that are not shared by others. So, what are the characteristics of human needs?

Human needs can be satisfied by a given activity. Satisfying a need decreases or diminishes the feeling of distress. After the initial satisfaction, additional actions towards the same need produce a lesser effect. For example, eating a meal will diminish the feeling of hunger. Eating dessert immediately after is unlikely to have as significant an effect as the main meal did.

Next, the number of a person’s needs always increases with time. This is because satisfaction of the need is followed by development of a new need as well as renewal of the same one. This means that the amount of needs in a society is unending and limitless. Finally, human needs are diverse and widely varied across different people. For example, the needs of a child might be different to the needs of an adult and so on. This can all be neatly summarized in the three words satisfaction, increase, and diversity.

Let’s now look at an example where we consider these characteristics.

Which of the following is not true of human needs? Is it (A) satisfying a human need diminishes the feeling of distress? (B) When a need of an individual is satisfied, the individual will not encounter the same need anymore. (C) The number of a person’s needs increases with time. Or is it option (D) human needs are widely varied depending on individuals?

Remember, we can widely classify human needs using three characteristics. Those are their satisfaction, increase, and diversity. Let’s take option (A) then. This statement tells us about the satisfaction of needs, which we’ve identified as one of the characteristics. In particular, when a human need is satisfied, the feeling of distress is reduced or diminished.

What about option (B), though, the second characteristic we defined using the word increase? We know that the number of needs increases with time. Satisfying a specific instance of a need is followed by a new need as well as the renewal of the same need. This means that this statement cannot be true.

For completeness, let’s check the final two. Option (C) we’ve just identified to be true. The number of needs increases with time. And option (D) links to the word diversity. We know that human needs are widely varied depending on individuals. And so the option that is not true of human needs is option (B).

Now that we have characterized human needs, let’s consider how they are related to economic activities. By economic activity we mean the production, distribution, or consumption of goods and services. Here, we define goods as tangible items, such as cars or apples. These are physical objects which you can see and/or touch. And by services we mean intangible items such as a haircut. These are not physical items but perhaps an activity.

At the heart of every economic activity are the human needs that motivate them. While an economic activity may not directly satisfy a need, all activities are motivated by their ability to either directly or indirectly satisfy a human need. This is why human needs are the most basic building blocks of economics.

In our next example, we’ll look at the nature of the relationship between human needs and economic activities.

Which of the following correctly describes the relationship between human needs and economic activities? Is it (A) an economic activity produces a human need? (B) Each human need motivates an economic activity. Is it option (C) each economic activity directly satisfies a human need? Or option (D) the eventual goal of any economic activity is to satisfy a human need.

Remember, a need of an individual is a feeling of distress that leads the individual to act to diminish it, while an economic activity refers to the production, distribution, or consumption of goods or services. All economic activities are motivated by their ability to either directly or indirectly satisfy human needs. So, let’s consider option (A). We’ve stated that economic activities are driven by their ability to satisfy a human need. This statement is therefore the wrong way round. Option (A) is false.

What about option (B)? We know that human needs do motivate economic activities, but this isn’t always true. For instance, an individual may have the need to go for a walk. That does not necessarily lead to production, distribution, or consumption of goods or services. This statement is also false.

Option (C) states that each economic activity directly satisfies a human need. However, we know that this may in fact happen directly or indirectly. For example, to satisfy the needs of a person to read a book, a factory may manufacture paper to be used in that book. This does not directly satisfy the needs of the individual, and so this statement is also false.

We might deduce that option (D) is true then, but let’s check. “The eventual goal of any economic activity is to satisfy a human need” is indeed a true statement. The needs of individuals are the driving force behind all economic activities. The correct answer is (D). The eventual goal of any economic activity is to satisfy a human need.

So far, we’ve learned about different types of human needs and how they drive a variety of economic activities. Satisfying needs requires resources. In economics, resources are a means by which an individual’s needs may be directly or indirectly satisfied. Take, for example, an apple tree. This is a resource since it provides apples for individuals. A nurse is also a resource for individuals with health-related needs.

We can further categorize each resource using the terms renewability, scarcity, and present form. According to renewability, resources are either renewable or nonrenewable. A forest, for instance, is renewable; it regenerates itself. Nonrenewable resources exist in limited amounts, such as gold or coal.

Next, we say that resources are either scarce or free. Resources are considered scarce if the needs for that resource exceed the amount available. Free resources exist in quantities that exceed their demand, such as air or water.

Finally, we can classify resources according to their present form as natural, human, or capital. Natural resources exist in nature such as forests. Human resources are simply humans who can provide services. And capital resources are goods that are produced by humans such as a car.

Let’s look at an example in which we identify capital resources from a given list.

Which of the following is an example of capital resource? Is it (A) a car, (B) petroleum, (C) a hairstylist, or (D) a forest?

Remember, we classify resources according to their present form. Specifically, capital resources are goods that have been produced by humans. We know that petroleum, sometimes known as crude oil and extracted from the ground, and forests are natural resources since they exist in nature. A hairstylist is also not an example of capital resource. In fact, that’s an example of human resource, a human who provides a service, in this case cutting your hair.

So that leaves option (A). In fact, we do know that cars are produced by humans, so this is an example of capital resource. The correct answer is option (A). This is an example of capital resource.

In our last example, we looked at different types of resources. But there are also different types of goods. We can categorize goods by considering whether they satisfy human needs directly or indirectly. Consumption goods are goods that directly satisfy human needs, for instance, apples to eat, houses to live in, and computers to use for enjoyment or work. Capital goods are ones which indirectly satisfy human needs, for example, paper that is used to print books or apples used to make apple juice.

Now, note that apples are listed in both options. The distinction between consumption and capital goods is not relative to the goods themselves but in how they are actually used to satisfy human needs.

In our final example, we will identify an example of capital goods from a list.

Which of the following is most likely to be an example of capital goods? (A) Jewelry, option (B) a car, (C) leather, or option (D) a television.

Remember, capital goods are goods that indirectly satisfy human needs. Jewelery might satisfy a human need to appear beautiful. This is an example of a good that directly satisfies human needs. In fact, it’s an example of a consumption good.

Similarly, a car will directly satisfy a human need, this time the need for transportation.

Option (C), leather, is usually used to produce clothing or furniture items. In these cases, leather indirectly satisfies the human need, so it’s an example of a capital good.

We might briefly also check option (D), a television. This is an example of a consumption good because it directly satisfies a human need for entertainment. The correct answer then is (C). Leather is an example of capital goods.

Let’s finish by recapping a few important concepts from this lesson. We learned that a need of an individual is a feeling of distress leading the individual to act to diminish or satisfy the need. Primary needs are needs that are essential for survival, while secondary needs achieve happiness for the individual or improve the condition of society. Human needs are characterized by satisfaction, increase, and diversity.

We saw that economic activities are the production, distribution, or consumption of goods. We learned that we can satisfy needs by means of resources, and these are classified by their renewability, their scarcity, and their present form. Finally, we also learned that we can separate goods into consumption goods, these are ones which directly satisfy needs, and capital goods, which indirectly do so.

Nagwa uses cookies to ensure you get the best experience on our website. Learn more about our Privacy Policy.