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.