Economics is about scarce resources and using those resources as wisely as we ca

Question

Economics is about scarce resources and using those resources as wisely as we can to satisfy as many needs and wants as we possible. We can arrange our resources into 4 major categories for better understanding. The categories are: Land, Labor, Capital and Entrepreneurship. The payments for these resources are: Rent, Wages, Interest and Profits.

The term Rent is very archaic. It comes from St. Thomas Aquinas's book Summa Theological published in 1244 AD. In the book he tried to explain various economic principles. The term Rent was used for the payment for land because, as he put it: While we are here on earth we own nothing. We merely rent it from God. If you don't believe it, try taking it with you when you go!

Land referred to everything grown on the land, or the animals grazing on the land or minerals extracted from the land. This includes all the trees and all the crops.

Wages are the payment for the use of labor for a period time, i.e., $10 an hour. We know that there are different types of payments including wages, salary, commissions, etc., but it's all referred to as Wages in economics. Of course with the wages comes the categories of exempt and non-exempt workers. Exempt means you are salaried and therefore exempt from the labor law regarding over-time (hours worked), etc. Non-exempt means you fall under the conditions and restrictions of the labor laws as far as hours worked, etc.

Capital has two meanings: Capital equipment and investment capital. Capital equipment is the machinery that makes other machinery. It's the machines that make i phones, computers, automobiles. etc. Investment capital is the funds that finance the purchase of capital equipment. The payments also have two meanings: income and expense item. If you are receiving the payment for investing in a firm's capital it's income. If you are the one paying for the use of investment capital, it is called an expense item.

Entrepreneurship refers to the individual who sees a profit opportunity and marshals the Land, Labor and Capital necessary to meet those unfulfilled needs and wants in order to make a profit. To an entrepreneur, a problem is a potential profit opportunity. If he can solve the problem he can make a profit. The entrepreneur, not the government, is the driving force in the economy. Without this person we would not have new or improved products or services.

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Why then, do you believe the has government spent so much time and effort discouraging or punishing entrepreneurs?

See how simple economics is? It's wart removal not brain surgery!

Explanation / Answer

According to my view government intervention is necessary because, as we all know that the economy has limited resources and it should be used judiciously rather than overexploiting it. More of the new ventures would lead to large use of resources which might not be used judiciously.

This could be well explained by stating the example that in free market there is a higher chance of inequality in terms of income and wealth,so there is a need for the governement to intervene.This can be well stated with the term Law of diminishing returns which states that as income increases there is a marginal diminishing utility. For Example I earn 15 Lakhs a year and a next year if I earn 15.2 Lakhs it would lead to a little more happiness but a person who is unemployed or earning meagerly would get a lot of happiness and will also effect his standard of living. Therfore from this we can say there should be redistribution of income for the entire welfare of the economy.

Negative externality is one of the another major reason that government should intervene because enterpreneurs are profit oriented and they do not care about the damage that is happening to the social environment. For example Burning coal could pollute the environment. It could be restricted only when goverment start taxing the enterpreneurs and provide subsidies to those who use environmental friendly methods.

Another Common scenario we observe in the economy is Monopoly, in which entrepreneur’s sets high prices and exploit the consumer to the fullest, therefore government intervention is needed to regulate the prices. Nowadays CSR (Consumer social responsibility) is the policy that companies have to do and they can’t ignore, initially it was pointed to be discouraging but over the time studies have proved that rewards of CSR policies are very much positive for both the targeting population and the company’s reputation.

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