1. Economic environment. Economic goods and services.

Today’s world is very complex. 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. They also find that they cannot have them all. People always want more than they have.

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.

Consumer goods are products, such as food, clothing, and cars that satisfy people’s economic needs or wants. Food are a typical example of perishable goods, by “perishable” we mean goods which cannot be stored for any length of time without going bad.

Services are actions, such as haircutting, cleaning or 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.

No economy can produce the things people want if it doesn’t have enough of the right kind of resources. In other words, there is a scarcity of resources. Scarcity is the situation that exists when demand for a good, service, or resource is greater than supply. Human wants are unlimited, but resources are limited.

Every country must solve basic economic problems: 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? 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 may cost you something.

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 services are the real costs of that product. In building a bridge, for example, the real costs of the bridge are the human, capital and natural resources in consumes.

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.

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.

Society must decide what it wants and what it is willing to give to get it. When you analyze each side of a tradeoff, you can make better decisions.