Costs of production. Opportunity costs. Tradeoffs

Economic environment. Economic goods and services.

People begin to learn about economics when they are still very young. They find that there is a big gap between what they want and what they can have.

Every economy has the problem of scarcity of resources. People wants are unlimited, but resources are limited. So, every group of people should solve basic economic problems of daily living: What goods and services will be produced? How will they be produced? Who will get them? And how much will be produced for now and how much for the future?

Consumer goods are products, such as food, clothing and cars, that satisfy people’s economic needs or wants. There are two types of consumer goods: perishable and nonperishable. Perishable goods, such as food, do not last long – they quickly go bad. But nonperishable goods, such as furniture, cars or computers, last longer without going bad.

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

In order to produce something, however, a person must first have required 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 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 resources. The basic economic questions individuals and nations face are: 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 three questions in a different way.

Costs of production. Opportunity costs. Tradeoffs.

All production involves a cost. The various resources used in producing a good or a service are the real cost of that product.

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

When people make a choice between two possible uses of their resources, they are making a tradeoff between them. Making a tradeoff means making a choice between two possible uses of their resources. To make choices that best satisfy human wants, people must be aware of all tradeoffs. Then, society will understand the true cost of making decisions rather than another, and can make the decision that best fits values and goals.

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 live better than they live today. However, if a nation increases its production of capital goods, its people may live better in the future. Since every economic decision requires a choice, economics is a study of tradeoffs. When you analyse each side of a tradeoff, you can make a better decision.

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