what is a budget? why is it important to a human services organization?

Chapter 1. Welcome to Economic science!

1.1 What Is Economics, and Why Is It Important?

Learning Objectives

By the terminate of this section, you will be able to:

• Discuss the importance of studying economics
• Explain the human relationship between product and division of labor
• Evaluate the significance of scarcity

Economics is the study of how humans make decisions in the face of scarcity. These can be private decisions, family decisions, business decisions or societal decisions. If you await around advisedly, you will see that scarcity is a fact of life. Scarcity means that human wants for goods, services and resource exceed what is available. Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply. Of course, the ultimate scarce resource is time- everyone, rich or poor, has just 24 hours in the solar day to endeavour to acquire the appurtenances they want. At any point in time, there is only a finite corporeality of resource available.

Think about information technology this way: In 2015 the labor strength in the United States independent over 158.6 million workers, according to the U.S. Bureau of Labor Statistics. Similarly, the full area of the United states of america is 3,794,101 square miles. These are big numbers for such crucial resources, nevertheless, they are express. Considering these resources are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that man wants seem to exist virtually infinite, and y'all can encounter why scarcity is a trouble.

Effigy 1. Scarcity of Resources. Homeless people are a stark reminder that scarcity of resources is real. (Credit: "daveynin"/Flickr Artistic Eatables)

If yous still exercise not believe that scarcity is a trouble, consider the following: Does anybody need food to consume? Does everyone need a decent place to live? Does everyone have access to healthcare? In every state in the world, at that place are people who are hungry, homeless (for example, those who call park benches their beds, every bit shown in Effigy 1), and in need of healthcare, just to focus on a few disquisitional goods and services. Why is this the case? It is because of scarcity. Allow's delve into the concept of scarcity a piddling deeper, because it is crucial to understanding economic science.

The Problem of Scarcity

Remember about all the things you eat: food, shelter, clothing, transportation, healthcare, and entertainment. How practice y'all acquire those items? You do not produce them yourself. Y'all buy them. How do you afford the things you lot buy? Yous work for pay. Or if yous practice not, someone else does on your behalf. Yet most of u.s.a. never have enough to buy all the things we want. This is considering of scarcity. So how do we solve information technology?

Visit this website to read nearly how the United States is dealing with scarcity in resources.

Every society, at every level, must make choices about how to use its resources. Families must determine whether to spend their coin on a new machine or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or into the school system. Nations must decide whether to devote more funds to national defence or to protecting the environment. In most cases, there just isn't enough money in the budget to do everything. Then why do nosotros non each simply produce all of the things we consume? The simple answer is most of u.s.a. practice non know how, simply that is non the main reason. (When y'all study economics, you lot volition discover that the obvious option is not always the correct answer—or at to the lowest degree the complete answer. Studying economics teaches yous to recall in a different of mode.) Recall back to pioneer days, when individuals knew how to do so much more than than we practice today, from edifice their homes, to growing their crops, to hunting for food, to repairing their equipment. Well-nigh of us do non know how to do all—or whatever—of those things. It is non because nosotros could not larn. Rather, we practise not accept to. The reason why is something called the division and specialization of labor, a product innovation showtime put forth past Adam Smith, Figure 2, in his book, The Wealth of Nations.

Figure 2. Adam Smith. Adam Smith introduced the idea of dividing labor into discrete tasks. (Credit: Wikimedia Commons)

The Sectionalisation of and Specialization of Labor

The formal study of economics began when Adam Smith (1723–1790) published his famous book The Wealth of Nations in 1776. Many authors had written on economics in the centuries before Smith, just he was the starting time to address the subject in a comprehensive way. In the first chapter, Smith introduces the segmentation of labor, which ways that the manner a skilful or service is produced is divided into a number of tasks that are performed by different workers, instead of all the tasks being done by the same person.

To illustrate the segmentation of labor, Smith counted how many tasks went into making a pin: cartoon out a piece of wire, cutting it to the right length, straightening information technology, putting a head on one finish and a point on the other, and packaging pins for sale, to proper noun just a few. Smith counted eighteen singled-out tasks that were oftentimes done past different people—all for a pivot, believe it or non!

Modern businesses divide tasks besides. Even a relatively simple concern like a eatery divides up the chore of serving meals into a range of jobs like summit chef, sous chefs, less-skilled kitchen assistance, servers to wait on the tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—non to mention the economic connections a eating place has with suppliers of food, furniture, kitchen equipment, and the building where information technology is located. A complex business like a large manufacturing factory, such as the shoe manufacturing plant shown in Figure 3, or a hospital can have hundreds of chore classifications.

Figure three. Division of Labor. Workers on an assembly line are an example of the divisions of labor. (Credit: Nina Hale/Flickr Creative Commons)

Why the Division of Labor Increases Product

When the tasks involved with producing a adept or service are divided and subdivided, workers and businesses tin can produce a greater quantity of output. In his observations of pin factories, Smith observed that i worker alone might make 20 pins in a solar day, only that a small business organization of 10 workers (some of whom would need to do ii or iii of the 18 tasks involved with pin-making), could make 48,000 pins in a day. How tin can a group of workers, each specializing in sure tasks, produce then much more the aforementioned number of workers who attempt to produce the entire good or service past themselves? Smith offered three reasons.

First, specialization in a item small job allows workers to focus on the parts of the product procedure where they have an advantage. (In after capacity, we will develop this idea by discussing comparative advantage.) People have unlike skills, talents, and interests, and so they will be ameliorate at some jobs than at others. The particular advantages may be based on educational choices, which are in plough shaped by interests and talents. Only those with medical degrees qualify to become doctors, for instance. For some goods, specialization will be affected by geography—it is easier to exist a wheat farmer in North Dakota than in Florida, but easier to run a tourist hotel in Florida than in Northward Dakota. If yous alive in or nearly a big city, information technology is easier to attract enough customers to operate a successful dry cleaning business organization or movie theater than if y'all live in a sparsely populated rural area. Whatever the reason, if people specialize in the production of what they practice best, they will be more productive than if they produce a combination of things, some of which they are practiced at and some of which they are non.

Second, workers who specialize in certain tasks frequently larn to produce more than chop-chop and with higher quality. This pattern holds truthful for many workers, including assembly line laborers who build cars, stylists who cut hair, and doctors who perform heart surgery. In fact, specialized workers often know their jobs well enough to suggest innovative ways to exercise their work faster and better.

A similar blueprint often operates within businesses. In many cases, a business concern that focuses on one or a few products (sometimes chosen its "cadre competency") is more successful than firms that try to make a broad range of products.

Tertiary, specialization allows businesses to take reward of economies of scale, which means that for many goods, as the level of product increases, the average cost of producing each private unit declines. For example, if a factory produces merely 100 cars per twelvemonth, each machine volition be quite expensive to make on average. Notwithstanding, if a manufacturing plant produces fifty,000 cars each year, then it can set an associates line with huge machines and workers performing specialized tasks, and the boilerplate cost of production per car will be lower. The ultimate outcome of workers who can focus on their preferences and talents, acquire to do their specialized jobs better, and piece of work in larger organizations is that social club every bit a whole can produce and consume far more than if each person tried to produce all of their ain goods and services. The division and specialization of labor has been a force against the problem of scarcity.

Trade and Markets

Specialization only makes sense, though, if workers can use the pay they receive for doing their jobs to purchase the other goods and services that they need. In curt, specialization requires merchandise.

Y'all do not have to know annihilation near electronics or sound systems to play music—you merely purchase an iPod or MP3 role player, download the music and listen. You do non have to know anything most artificial fibers or the construction of sewing machines if you need a jacket—you just buy the jacket and wear information technology. Yous do non need to know anything about internal combustion engines to operate a car—you just get in and drive. Instead of trying to larn all the cognition and skills involved in producing all of the goods and services that you wish to eat, the market allows you lot to larn a specialized fix of skills and and so employ the pay y'all receive to buy the goods and services yous need or want. This is how our mod lodge has evolved into a strong economic system.

Why Report Economics?

Now that we have gotten an overview on what economic science studies, allow'southward chop-chop talk over why you are right to report it. Economics is not primarily a collection of facts to be memorized, though there are enough of important concepts to be learned. Instead, economics is better thought of as a collection of questions to be answered or puzzles to be worked out. Most of import, economics provides the tools to piece of work out those puzzles. If y'all have notwithstanding to be been bitten past the economics "bug," at that place are other reasons why you should study economics.

• Virtually every major trouble facing the world today, from global warming, to globe poverty, to the conflicts in Syria, Afghanistan, and Somalia, has an economic dimension. If you are going to be part of solving those issues, you need to be able to understand them. Economics is crucial.
• It is hard to overstate the importance of economics to good citizenship. Y'all need to be able to vote intelligently on budgets, regulations, and laws in general. When the U.S. regime came shut to a standstill at the end of 2012 due to the "fiscal cliff," what were the issues involved? Did you know?
• A basic understanding of economics makes you a well-rounded thinker. When yous read manufactures almost economic issues, yous will understand and be able to evaluate the writer'due south statement. When you hear classmates, co-workers, or political candidates talking almost economics, you will be able to distinguish between mutual sense and nonsense. You will find new ways of thinking well-nigh electric current events and about personal and business decisions, likewise as electric current events and politics.

The study of economics does not dictate the answers, but information technology can illuminate the dissimilar choices.

Central Concepts and Summary

Economics seeks to solve the trouble of scarcity, which is when human wants for goods and services exceed the bachelor supply. A modernistic economy displays a segmentation of labor, in which people earn income by specializing in what they produce and and then employ that income to purchase the products they demand or desire. The partitioning of labor allows individuals and firms to specialize and to produce more for several reasons: a) It allows the agents to focus on areas of reward due to natural factors and skill levels; b) It encourages the agents to learn and invent; c) It allows agents to take advantage of economies of scale. Division and specialization of labor only work when individuals tin buy what they do non produce in markets. Learning near economics helps you lot sympathize the major problems facing the world today, prepares you to be a expert denizen, and helps you become a well-rounded thinker.

Self-Check Questions

1. What is scarcity? Can y'all call up of two causes of scarcity?
2. Residents of the town of Smithfield like to consume hams, but each ham requires ten people to produce it and takes a month. If the town has a total of 100 people, what is the maximum amount of ham the residents can consume in a month?
3. A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economical sense for her to spend her time at the consulting chore and store for her vegetables?
4. A calculator systems engineer could paint his house, only it makes more sense for him to hire a painter to practise it. Explain why.

Review Questions

1. Give the 3 reasons that explain why the division of labor increases an economy's level of production.
2. What are three reasons to study economics?

Critical Thinking Questions

1. Suppose you have a team of two workers: one is a baker and i is a chef. Explain why the kitchen can produce more than meals in a given period of time if each worker specializes in what they practise best than if each worker tries to do everything from appetizer to dessert.
2. Why would segmentation of labor without trade non work?
3. Can you think of any examples of free goods, that is, goods or services that are not deficient?

References

Bureau of Labor Statistics, U.S. Section of Labor. 2015. "The Employment Situation—February 2015." Accessed March 27, 2015. http://www.bls.gov/news.release/pdf/empsit.pdf.

Williamson, Lisa. "US Labor Market in 2012." Agency of Labor Statistics. Accessed December i, 2013. http://www.bls.gov/opub/mlr/2013/03/art1full.pdf.

Glossary

sectionalisation of labor

the way in which the work required to produce a good or service is divided into tasks performed by unlike workers

economics

the study of how humans brand choices nether conditions of scarcity

economies of scale

when the average toll of producing each individual unit declines as total output increases

scarcity

when human being wants for appurtenances and services exceed the available supply

specialization

when workers or firms focus on particular tasks for which they are well-suited inside the overall production process

Solutions

Answers for Self-Check Questions

1. Scarcity means human wants for goods and services exceed the bachelor supply. Supply is limited because resources are express. Need, however, is virtually unlimited. Whatever the supply, it seems human being nature to want more.
2. 100 people / 10 people per ham = a maximum of x hams per month if all residents produce ham. Since consumption is express past product, the maximum number of hams residents could consume per calendar month is ten.
3. She is very productive at her consulting job, but non very productive growing vegetables. Fourth dimension spent consulting would produce far more than income than information technology what she could save growing her vegetables using the same amount of time. So on purely economic grounds, information technology makes more sense for her to maximize her income past applying her labor to what she does best (i.due east. specialization of labor).
4. The engineer is better at computer science than at painting. Thus, his time is better spent working for pay at his job and paying a painter to paint his house. Of grade, this assumes he does non pigment his house for fun!

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Source: https://opentextbc.ca/principlesofeconomics/chapter/1-1-what-is-economics-and-why-is-it-important/

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