Economics

In the following questions, you will learn about economics. Economics is the study of decisions people make to meet needs and wants. Needs are things that you must have to live or stay healthy and safe. Wants are things that you would like to have.

Think about your choices!

Everyone has wants and needs, and everyone makes choices to try to meet those wants and needs. Think of some decisions you made today. With each one, you tried to satisfy a need or want. When you study economics, you will think about choices like these!

What did you eat?

How did you spend your time?

Did you earn or spend money?

People use goods and services to meet their needs and wants. A good is something you can touch or hold in your hands. A service is a job you pay someone to do for you.

Are there times when you would use both a good and a service?

Yes! Many needs and wants can be met with either a good or a service. But for others, you might use both a good and a service! For example, when you eat at a restaurant, the meal is a good. Having the meal cooked for you is a service.

The examples below show times you would use both a good and a service. Can you think of others?

I want to use a book from the library.

I want to have a pizza delivered.

I want to use the internet at home.

Resources are things people use to make goods and services. Resources include things such as land, tools, and the work that people do.

Is money a resource?

Most people who study economics would say that money is not a resource! Money is not actually used to make things people want or need. But money can be traded to get goods, services, or resources. So, sometimes people talk about money as a resource because it helps you get the things you want or need.

The word economics comes from another word meaning "someone in charge of running a home." Someone who runs a home thinks about how to meet needs and wants.

To meet their needs and wants, every group of people must answer the three questions below. These questions are often called the fundamental, or basic, questions of economics.

• What goods or services should we make? For example, what meals do people make at your home?

• How will we make those goods and services? How do people at your home divide up the work for making meals?

• Who will get those goods and services? How do people at your home share the food once it is made?

People need resources to meet their needs and wants. But resources are scarce, or limited.

Why can't you just make a bigger one?

Any time you use a scarce resource, you pay a price. For example, let's say your school has a garden and wants to use more space for it. If the school makes the garden bigger, they would lose space for other things, such as a soccer field. The school could buy more land but would have to spend money. Eventually, the school would run out of extra land or money to spend on the garden.

Prices and money

Prices are often expressed in terms of money. For example, you could buy more land to make a bigger garden. But you would have to spend money.

Prices are also one way of deciding who gets to use something. For example, if a piece of land is being sold for $5,000, only people who are willing or able to pay that price get to use it!

Scarce resources mean people face trade-offs. A trade-off is when you have to give up some amount of one thing to get something else you want.

Opportunity cost

Trade-offs are choices between things you want or need. Whatever you give up when you make one of these choices is called an opportunity cost.

For example, imagine you are going to see a movie. There are several movies you want to see, but you have to pick one. Rank the movies in the order you would like to see them. The movie you would have picked as your second-best choice will be the opportunity cost of your decision. It is called an opportunity cost because you will give up the opportunity, or chance, to see it.

Economics exists because people have unlimited wants but limited resources. In other words, there are not enough resources to meet all of people's wants. This problem is called scarcity.

• People sometimes can't have as much of something as they want. For example, land is scarce. You might not have enough land in your garden to grow all of the vegetables you want.

• People face trade-offs, or choices between things they want. For example, you might want to start growing tomato plants. But since land is scarce, or limited, you may have to take out some other plants to make room in your garden.

Scarcity means people must make choices. Choices have consequences, or results. These consequences are often spread out over time. Some consequences happen in the present, or right away. Others happen further in the future.

Economics involves thinking carefully about the consequences of decisions. In economics, consequences are often divided into costs and benefits.Costs involve giving up or spending something you want or need. Benefits involve gaining or saving something you want or need.

Are costs and benefits the same for everyone?

No! For example, imagine a new pool is being built in Weston. The people who live right next to it might see more costs to this decision, since the pool will be noisy and increase traffic. But people who live farther away from the pool might see more benefits, since they can go to the pool when they want to.

Incentives are consequences that encourage you to act a certain way. A positive incentive is a reward. It gives benefits. A negative incentive is a penalty. It has costs.

Incentives and college sports

Colleges often compete to get the best players for their sports teams. Since many people like watching college sports, schools can make a lot of money by having winning teams.

But the NCAA, or National Collegiate Athletic Association, has strict rules about incentives that schools can use to attract players. Schools can offer scholarships, or money towards paying for school. But schools cannot pay players a salary or offer them expensive gifts such as houses or cars.

People's choices are influenced by incentives. You can often tell how people will respond to incentives, because people tend to look out for their self-interest. In other words, they seek things they want or need and avoid costs when possible.

Are there differences in the way people respond to incentives?

Yes! Different people value, or appreciate and want, different things. So, while some people may think of a certain consequence as a good thing, others may try to avoid it.

Would you work hard to win tickets to a concert by your favorite band or artist? What if you don't like the music of the band or artist playing at the concert?

For example, imagine that your school has a magazine drive to raise money. As a positive incentive, the school offers a prize for the student who sells the most magazines: tickets to a concert. If you like the band or artist playing at the concert, you will be more likely to sell magazines. But if you don't like the band or artist's music, you probably won't go out of your way to try to win the prize. You might even be less likely to sell magazines!

People's choices make up an economy. An economy is the way people in a society use their resources to meet their needs and wants. It's a system for making and exchanging goods and services.

What does it mean when someone says "the economy?"

When someone says "the economy," they are most likely talking about the economy of the country they live in. But people sometimes use "the economy" to mean the economy of another community that they belong to. For example, the governor of a state might say "the economy" when giving a speech about the economy of that state.

How can the economy grow?

People also sometimes talk about the economy "growing" or "expanding." When people say these things, they usually mean that more goods and services are being made to meet people's needs and wants. Either more resources are available to use, or people in the economy are using their resources better. When people talk about the economy "declining" or "shrinking," they mean the opposite. Fewer goods and services are being made.

When the economy is growing, more goods and services are being made to meet people's wants and needs.

People who study economies are called economists. They look for patterns in the choices people make. They also think about the results of those choices.

Where do economists work?

Economists have a lot of different job opportunities! Below are some examples of places economists work:

Economists work for the government where they help make decisions about how to use money or resources.

Economists work at universities, or advanced schools, teaching and researching how economies work.

Economists work in business where they do economic research and make models.

Economists also think about how people could better use their resources. They try to give good answers to three questions every community must answer:

• • What goods and services should we make?

  • How should we make them?

  • Who should get to use them?

Back to the basics!

Do you remember the three basic economic questions? When economists answer questions about what should be done, they are almost always answering one of these questions! Look at these questions again:

Should we use our land to build more factories or more farms? In other words, "What goods and services should we make?" Factories and farms make different kinds of goods.

How do we encourage people to open new businesses? In other words, "How should we make goods and services?" Businesses make goods and services, so this question is about how to make sure that things people want or need will get made.

Should a bridge be free for everyone to cross? In other words, "Who should get to use the goods and services we make?"

Economics is about how people meet their needs and wants. To meet their needs and wants, people use resources to make goods and services. But because of scarcity, people must choose how to use resources. Those choices have consequences, now and in the future. The choices of the people in a place or region make up its economy. Economists study the economy. They look at data to form models of the economy and try to predict the consequences of behaviors or choices.