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I had an introductory class in marketing last week, and the professor wanted to test our previous knowledge of economics (we are juniors). He asked us this simple question: "What are the fundamental/basic categories in economics?"

Confused by the vagueness of the question, most of us said labor, capital, profit, markets... All sorts of things, but none were apparently correct. In the end, he said that the correct answer is:

  • cost
  • result (as in profit or revenue)
  • time

He continued to say that we define everything in economics on the basis of these three categories.

My questions now are: is this true? Do I really have such a significant knowledge gap that I somehow missed this crucial piece? Where can I find the confirmation of his statement?

If this is not true, can you please refer me to where I can find the answer to this question?

Thanks

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    $\begingroup$ Are you sure he didn't ask for the fundamental categories in business? The supposed correct answer would make more sense for business as opposed to economics. $\endgroup$ – Herr K. Oct 16 '18 at 21:07
  • $\begingroup$ No, it was in economics. $\endgroup$ – Quant Oct 16 '18 at 21:08
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Cost covers all the inputs you mentioned and markets don't need to exist. Rent seeking is a perfectly valid alternatives to markets. So having to choose (cost/spend) between different alternatives (profit) is all there is. You can even include time as a cost and reduce it to two factors.

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An interesting question...

The first thing I would say is demand. Without demand, there's no incentive to supply anything. Demand, in turn, is based on consumer utility. I exclude budget constraints, because a budget assumes a system. A single person on a deserted island will pick a fruit from a tree (tree as capital + labor, supply... ) only if he's hungry (demand)

The next thing I would treat is supply. dependant on means and motivation (demand), any use of production factors to satisfy demand The basic economic concept axiom built on that is decreasing marginal product.

The last thing is game theory. The entire economic theory is based on game theory One might say that economics is a specific case of game theory, for example, an economic equilibrium is a multiplayer simultaneous game

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  • $\begingroup$ Maybe the last point then should be interaction or exchange, for which Game Theory is one way to think about. $\endgroup$ – E. Sommer Oct 19 '18 at 8:40
  • $\begingroup$ I don't think so... game theory tried to model interests, incentives and actions accordingly. The entire economic theory is based on incentives and can be described as games, in game theory $\endgroup$ – Guy Louzon Oct 19 '18 at 8:47

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