1. Economic environment. Economic goods and services.

Today’s world is very complex. A knowledge of economics, the study of how people and countries use their resources to produce, distribute, and consume goods and services, is important to everyone now. Your understanding of economics will influence how you earn a living and help you make better economic decisions.

Even before people start school, they make two very important economic discoveries. They find that there are lots of things in the world they want but they cannot have them all. There is a big gap between what they want and what they can have.

Later, young people learn another lesson. When they watch television commercials, they discover that there are thousands of things they or their parents could buy. Gradually, they settle into two major economic roles: consumer and producer. In the role of the consumer, a person buys goods and services for personal use, not for resale.

Consumer goods are products, such as food, clothing, and cars, that satisfy people’s economic needs or wants. Some consumer goods, such as food, do not last a long time.

Services are actions, such as haircutting, cleaning of teaching. Services are used up at the time they are provided.

A producer makes the goods or provides the services that consumers use.

In order to produce something, however, a person must first have right resources. Resources are the materials from which goods and services are made. There are three kinds of resources: human (people), natural (raw materials), and capital resources (capital, or the money or property). If either of these resources is missing, production will stop.

Every group of people, individuals and nations must solve basic economic problems of daily living: What goods and services will be produced? How will they be produced? Who will get them? How much will be produced for now and how much for the future? The answers to the questions depend on a country’s human, natural and capital resources, and also on its customs and values. Each country will answer these questions in a different way.

2. Costs of production. Opportunity costs. Tradeoffs.

Opportunities are chances to improve your situation. Opportunities, however, may cost you something. If you spend time watching television, you cannot spend the same time at the library. If you buy a car, you cannot spend the same money for a stereo.

All production involves a cost. This cost is not counted simply in terms of money but also in terms of resources used. The various resources used in producing a good or a service are the real costs of that product.

Since resources are limited and human wants are unlimited, people and societies must make choices about what they want most. Each choice involves costs. The value of time, money, goods and services given up in making a choice is called opportunity cost.

To make choices that best satisfy human wants, people must be aware of all the tradeoffs. Then, society will understand the true costs of making one decision rather than another, and can make the decision that best fits its values and goals.

How can the concepts of opportunity costs and tradeoffs be used to help explain how the economy works? One way is construct a simple plan of the economy call an economic model. The simple plan helps economists to analyze economic problems, seek solutions, and make comparisons between the economic model and the real world.

One of the most important choices a society makes is between producing capital goods and producing consumer goods. If a nation increases its production of consumer goods, its people will better lives today. However, if a nation increases its production of capital goods, its people may live better in the future.