Changes

(4) Start a new business to earn profits.  But watch out here: 9 out of 10 new businesses fail!

(4) Start a new business to earn profits.  But watch out here: 9 out of 10 new businesses fail!

Sounds simple enough, right?  Look around you, and you’ll see people earning money each of the four above ways.  Mostly, you’ll see the first way: get a job and earn some wages.  That entails the least risk and is the easiest for most people.  Adults and teenagers often follow the path of least resistance, and often imitate others.  In economics, that means getting a job to work for a company.  It’s great until the job becomes tiresome or the boss fires you.  Then it’s not so great anymore.  But as a teenager you can earn money from someone else while you are learning how business works.  You need experience and savings before you can even try to make money the other three ways.

Sounds simple enough, right?  Look around you, and you’ll see people earning money each of the four above ways.  Mostly, you’ll see the first way: get a job and earn some wages.  That entails the least risk and is the easiest for most people.  Adults and teenagers often follow the path of least resistance, and often imitate others.  In economics, that means getting a job to work for a company.  It’s great until the economy goes through a downturn and you get "laid off" (fired), or the job becomes tiresome and tedious, or the boss fires you because he did not like something you said.  Then it’s not so great anymore.  But as a teenager you can earn money from someone else while you are learning how business works.  You need experience and savings before you can even try to make money the other three ways.

Economists have their own terminology which, as you’ve seen in this course, is often different from common usage.  In economics, the basic terms of wages, interest, rent and profit are all redefined.  Ughhhhhh!  Here we go:

Economists have their own terminology which, as you’ve seen in this course, is often different from common usage.  In economics, the basic terms of wages, interest, rent and profit are all redefined.  Ughhhhhh!  Here we go:

“[[Economic wages]]” are payments for the worker’s opportunity cost of time.  When Charles earns $7 per hour working for a dry cleaners, those wages are payments for his opportunity cost of time.  He could be working someone else making money.  The market rate of $7 implies that his time is worth that much at this stage in his life.

“'''''[[Economic wages]]'''''” are payments for the worker’s opportunity cost of time.  When Charles earns $7 per hour working for a dry cleaners, those wages are payments for his opportunity cost of time.  He could be working someone else making money.  The market rate of $7 implies that his time is worth that much at this stage in his life.

“[[Economic rent]]” is the payment for a perfectly inelastic input.  If increasing the payment does not increase the supply of the input, then this is a “rent”.  It is similar, but not identical, to rent paid on scarce land.  Increasing the rent does not increase the supply the land.  The supply is fixed.  Don’t worry if you don’t understand this yet.  We’ll spend more time on it below.

“'''''[[Economic rent]]'''''” is the payment for a perfectly inelastic input.  If increasing the payment does not increase the supply of the input, then this is a “rent”.  It is similar, but not identical, to rent paid on scarce land.  Increasing the rent does not increase the supply the land.  The supply is fixed.  Don’t worry if you don’t understand this yet.  We’ll spend more time on it below.

“[[Interest]]” is straightforward: it is the cost of the use of money over time.  If you borrow $10,000 for your business, then you have to pay interest (say 5%) for using that money.  The person who lent you the money wants something for it.  He’s not going to give it to you for free.

“'''''[[Interest]]'''''” is straightforward: it is the cost of the use of money over time.  If you borrow $10,000 for your business, then you have to pay interest (say 5%) for using that money.  The person who lent you the money wants something for it.  He’s not going to give it to you for free.

“[[Economic profits]]” is concept we’ve addressed before.  It is total revenues minus total costs, including opportunity costs of time and money in the costs.

“'''''[[Economic profits]]'''''” is concept we’ve addressed before.  It is total revenues minus total costs, including opportunity costs of time and money in the costs.

==Interest==

==Interest==