1. Fundamental of Economics – Basics

Before I talk about two types of economics which would be very familiar to you – Micro and Macro economics – there are some basic knowledge that we should know in order to understand them properly.






“Everything you NEED or WANT throughout your life”


Resources can be divided into two types:


1) Unlimited Resource

  • Exists in unlimited amount
  • things such as Sunlight, Oxygen, etc
  • Do not require economic analysis


2) Limited Resource

  • Exists in limited amount
  • things such as Money, House, Foods, everything you purchase
  • Subject of economic analysis






“FINITE resources   BUT   INFINITE needs & wants”


= Resources are insufficient to satisfy all human wants and needs

-> Scarcity appears

-> The Reason Why Economics Exists (Choice should be made, but what choice would you make?)


  • Scarcity (shortage) -> Price (Exchange Value) ↑      <=  Marginal Utility

                                                         ≠ Use Value (Total Utility)

         ∴ Price is determined by Scarcity





Basic / Central Economic Problems

“Resources are scarce, therefore economics asks three questions…”


  1. WHAT to produce?   –   deciding types and quantity of supply (focusing on efficiency)
  2. HOW to produce?   –   deciding procedures of supply (focusing on efficiency)
  3. FOR WHOM to produce?   –   deciding distribution of goods (focusing on efficiency and equity)





Factors of Production (Types of Resource)


  1. LAND   –   Every natural resource (such as Gas, Mineral, Petroleum, etc)
  2. LABOUR   –    All kind of human resource
  3. CAPITAL (≠ money)   –   All kind of man-made goods (such as Machine, Truck, etc)
  4. ENTREPRENEURSHIP (= Enterprise)   –   Ability (of manager) to arrange and make use of resources in production





Efficiency     VS     Equality


EFFICIENCY : to produce as many as possible with resources

(Extreme pursuit on efficiency in Free Market economy)

-> Making the whole pie as large as possible


EQUALITY : to distribute given resources equally to people

(Extreme pursuit on equality in Command economy)

-> Dividing the whole pie as equal as possible





Economy Systems



  • Most of modern nations
  • a.k.a. Capitalism
  • Market & Price decide everything

Invisible Hand (= market & price, from The Wealth of Nations by Adam Smith), Total Freedom, No Government Intervention, Private Property, Fair Competition, Self-Interest & Incentive



  • Only few exist(ed) (such as USSR, past China, Cuba, North Korea, Vietnam)
  • a.k.a. Communism
  • Central government decides everything
  • No private property


Why did command economy fail?

1. Difficult of expectation & control (since all the productions are commanded, it cannot flexibly react to external/unexpected factors; black swans)

2. No incentive to work diligently (since everyone work together and distributed equally, working hard does not guarantee higher return)



= Market Economy + Command Economy

: based on Market economy, but has some features of Command economy (such as Tax, Subsidy, Welfare, etc)





Micro Economics     VS     Macro Economics



  • Focus on individual agents
  • Household & Firms



  • Focus on national-wide or international-wide
  • Entire society & government (such as Inflation, Deflation, Fiscal & Monetary Policies, Exchange Rate, Trades, etc)





Two Types of Statements



  • “~ should be ~.”
  • Subjective, and opinion-included (value judgement)
  • Approval / Disapproval



  • “~ is ~.”
  • Objective, and evidence-based (fact judgement)
  • Provable / Disprovable





Industry Sectors


  1. Primary : gets products directly from the nature (such as Agriculture, Fishery, Forestry…)
  2. Secondary : processing or manufacturing (bit oddly, mining is categorised as secondary industry)
  3. Tertiary : service & wholesale / retail






* Things that I wrote here can be wrong or subjective. Please generously understand.

* Any feedback are welcomed.

* Words coloured like this include things that I did not discuss yet.

* I want to thank Yong-ju Kim, who introduced me to the world of economics and taught me lots of things.

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