Economic environment. Economic goods and services.

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. They also find that 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. Other goods, such as furniture, cars or computers, last longer. Sooner or later, though, consumer goods are used up. Bananas are a typical example of perishable goods, by “perishable” we mean goods which cannot be stored for any length of time without going bad. Most foodstuffs are in the perishable category.

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. A person who makes lemonade and then sells it is producing goods. A person who shovels snow during the winter or clerks in a store is providing a service. Students working after school or during the summer earn money to buy some of the things they want – records, books, or a car. They are learning about the role of the producer.

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.

The economy as a whole, like an individual, can produce only products for which it has the right kind of resources. 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 tend to be unlimited, but human, natural and capital resources are, unfortunately, limited.

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.

 

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. In building a bridge, for example, the real costs of the bridge are the human, capital and natural resources in consumes. To build a bridge requires the labour of many people, including engineers and construction workers. The capital resources these people use include a variety of tools and machines. Building a bridge also requires natural resources, such as iron ore and coal. These natural resources are used to make the steel that is used in constructing the bridge.

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.

When steel is used to make a bridge instead of a hospital, the loss in hospital is the opportunity cost of making the bridge. In fact, any resources used for the bridge are then no longer available for something else. When people make a choice between two possible uses of their resources, they are making a tradeoff between them.

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. AN economic model is a little bit like a model airplane. It helps to explain how the real thing works, even if it doesn’t fly. When models are used to help solve economic problems, their usefulness depends on the assumptions made about the 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.

Choosing between home computers and industrial robots is an example of a choice a society must make. Society must decide what it wants and what it is willing to give to get it. The same applies to you individually. Since every economic decision requires a choice, economics is a study of tradeoffs. When you analyze each side of a tradeoff, you can make better decisions.

 

Utility and prices.

According to our basic needs and additional individual wants we require different kinds of commodities. Our basic needs are simple, but our additional individual wants are often vey complex. Commodities of different kinds satisfy our wants in different ways. A cake, a bottle of medicine and a textbook satisfy very different wants. This characteristic of satisfying a want is known in economics as “utility”. It is related to the number of factors and a utility change is concerned with the consumer’s relation to a commodity.

Utility, however, should not be confused with usefulness. For example, a submarine may or may not be useful in time of peace, but it satisfies a want. Many nations want submarines. Economists say that utility determines “the relationship between a consumer and a commodity”.

Utility varies between different people and between different nations. A vegetarian does not want meat, but may rate the utility of bananas very highly, while a meat-eater may prefer steak. A mountain-republic like Switzerland has little interest in submarines, while maritime nations rate them highly.

Utility varies not only in relation to individual tastes and to geography, but also in relation to time. In wartime the utility of bombs is high, and the utility of the pianos is low. Utility is therefore related to our decisions about priorities in production. The production of pianos falls sharply in wartime.

The utility of a commodity is also related to the quantity, which is available to the consumer. If paper is freely available, people will not be so much interested in buying too much of it. If there is an excess of paper, the relative demand for paper will go down. We can say that the utility of a commodity therefore decreases as the consumer’s stock of that commodity increases.

In most economic systems, the prices of the majority of goods and services do not change over short periods of time. In some systems it is of course possible for an individual to bargain over prices, because they are not fixed in advance. In general terms, however, the individual cannot change the prices of the commodities he wants. When planning his expenditure, he must therefore accept these fixed prices. He must also pay this same fixed price no matter how many units he buys. A consumer will go on buying bananas for as long as he continues to be satisfied. If he buys more, he shows that his satisfaction is still greater than his dislike of losing money. With each successive purchase, however, his satisfaction compensates less for the loss of money.

A point in time comes when the financial sacrifice is greater than the satisfaction of eating bananas. The consumer will therefore stop buying bananas at the current price. The bananas are unchanged: they are no better or worse than before. Their marginal utility to the consumer has, however, changed. If the price had been higher, he might have bought fewer bananas; if the price had been lower, he might have bought more.

It is clear from this argument that the nature of a commodity remains the same, but its utility changes. This change indicates that a special relationship exists between goods and services on the one hand, and a consumer and his money on the other hand. The consumer’s desire for a commodity tends to diminish as he buys more units of it. Economists call this tendency the Law of Diminishing Marginal Utility.

The interaction of buyers and sellers determines the price for goods and services. If the price is low, a shortage will develop, thereby driving up the price. If the price is too high, a surplus will develop and move the item’s price down. A society may interfere in market prices by means of price controls and ration stamps. Price controls are often used in times of severe shortages to make sure that the prices for important items, such as food and gasoline, do not go too high. The price of rental housing is controlled by law in some American cities today. During World War II, people were issued ration stamps for meat, butter, sugar, canned goods, shoes and gasoline. Such a person was thus able to get the minimum amount of these goods needed to survive. Price controls and ration stamps were also discussed in recent years as a way of dealing with temporary shortages in gasoline and heating oil.

In a market economy, prices are the result of the needs of both buyers and sellers. The sellers will supply more goods at higher prices than at lower ones. The buyers will buy more goods at lower prices than at higher ones. Some price is satisfactory to both buyers and sellers. At that price the supply – quantity offered for sale – equals the demand – quantity people are willing to buy. Since no surplus or shortage exists, there is no pressure on price to change. This point is called an equilibrium price. At the equilibrium price, the amount producers will supply and the amount consumers will buy are the same.

 

Income and spending

People’s incomes determine how many of the economy’s goods and services they can purchase. Income is the money a person receives in exchange for work or property. There are five basic types of income:

· employee compensation is the income earned by working for others. It includes wages and fringe benefits such as health and accident insurance.

· proprietor compensation is the income that self-employed people earn.

· corporation profit is the income corporations have left after paying all the expenses.

· interest is the money received by people and corporations for depositing their money in savings account or lending it to others.

· Rent is income from allowing others to use one’s property temporarily.

The total income is the sum of employee and proprietor compensation, corporation profit, interest and rent. In each category, people receive this income in return for providing goods or services.

One other type of income is a transfer payment – money one person or group gives to another, though the receiver has not provided a specific good or service. Gifts, inheritances, and aid to the poor are three examples of transfer payments.

During the past century, the percentage of people who work for themselves has generally declined. Increasingly, people are employees and not self-employed.

By the type of work people do workers fall into one of four broad categories:

1. White-collar workers are people who do jobs in offices, such as secretaries, teachers, and insurance agents.

2. Blue-collar workers are people who do jobs in factories or outdoors. Artisans, such as carpenters and plumbers, are blue-collar workers.

3. Service workers provide services to other individuals or businesses. Janitors, barbers, and police are service workers.

4. Farm workers are people who work on their own farms or those of others.

In the market system a person’s income is determined by how the market values that person’s resources and skills. Individuals, such as doctors, whose skills society values, receive high incomes. People who own valuable resources, such as capital to invest or land to develop, also receive high incomes.

Income is not the same as wealth. Wealth is any resource that can be used to produce income. An individual’s possessions, such as house, a car, or jewelry, are part of that person’s wealth. Each of these could be sold to produce income. Savings accounts and corporation stocks are types of wealth that usually produce income. Labour skills are not counted because they are difficult to measure. In addition, an individual’s debts are subtracted from personal wealth. A person with many valuable possessions but many debts may have no more wealth than a person with a few possessions but no debts.

People with similar incomes may have very different amounts of wealth. Consider two women who receive an income of $25000 a year. One earns all of her income working at a bank. The other receives her $25000 income from dividends on stock worth $250000. Aside from the stock the second woman owns, the possessions and debts of the two are similar. The difference in stock ownership, though, is large. The second woman is much wealthier than the first woman.

When individuals receive any income, whether as allowance, paycheque, or gift, most of that income is spent. Spending becomes income for someone else. The money each individual spends multiplies throughout the economy as others receive and spend parts of it. In addition, the choice you and others make can lead to investment spending. More things are made and more places are built. Thus spending results in changes throughout the economy.

 

Pricing policies.

 

Market prices are determined by the interaction of supply and demand. Companies’ pricing decisions depend on one or more of three basic factors: production and distribution costs, the level of demand, and the prices (or probable prices) of current and potential competitors. Companies also consider their total objectives and their consequent profit or sales goals, such as obtaining maximum income, or maximum market share, etc. Pricing strategy must also consider market positioning: quality products generally require “prestige pricing” and will probably not sell if their price is thought to be too low.

Firms with excess production capacity, a large stock, or a falling market share, tend to cut prices. While firms experiencing cost inflation, or in urgent need of cash, tend to raise prices. A company faced with demand that exceeds its possibility to supply is also likely to raise prices.

Demand is said to be elastic if sales respond directly to price variations. When sales remain stable after a change in price, demand is inelastic. Although it is an elementary law of economics that the lower the price, the greater the sales, there are numerous exceptions. For example, price cuts can have unpredictable psychological effects: buyers may believe that the product is faulty or of lower quality, or will soon be replaced, or that the firm is going bankrupt, etc. Similarly, price rises convince some customers that the product must be of high quality, or will soon become very hard to get hold of, etc! A potential customer seeing a price of $499 will register the $400 price range rather than the $500. This is a psychological effect that many sellers count on. Such technique is known as “odd pricing”.

Actually most customers consider elements other than prices when buying something: the “total cost” of a product can include operating and servicing costs, and so on. Since price is only one element of the marketing mix, a company can respond to a competitor’s price cut by modifying other elements: improving its product, service, communications, etc. Reciprocal price cuts nay only lead to a price war, good for customers but disastrous for producers who merely end up losing money.

Whatever pricing strategies a marketing department selects, a products selling price generally represents its total cost (unit per cost plus overheads) plus profit or “risk reward”. Overheads are the various expenses of operating a plant that cannot be charged to any one product, process or department, which have to be added to prime cost or direct cost which covers material and labour. Cost accountants have to decide how to allocate or assign fixed and variable costs to individual products, processes or departments.

Microeconomists argue that in a fully competitive industry, price equals minimum average cost equals break-even point.

 

The supply of money.

Your personal supply of money changes often. Increases and decreases in your supply of money probably affect how much you spend. Similarly, the amount of money in the total economy changes often. Changes in the economy’s money supply are more complex than changes in a personal money supply. Still, these fluctuations of the money supply influence not only how much spending occurs but also the general level of business activity. The money supply of the United States is constantly changing. Sometimes it expands and sometimes it contracts. The government prints new bills and mints new coins every year to replace those that are worn. It also changes the money supply to meet people’s needs. The supply of checking account money, or demand deposits, also changes. Banking laws in the United States require a bank to put a certain percentage of its deposits in reserve. A bank’s reserve is the money the bank must be 10 percent of total deposits. Of John Winslow’s $10000, the bank keeps $1000 in reserve. The other $9000 it lends to anyone able to pay it back with enough interest. So the process continues, with a succession of borrowers and depositors. None of these transactions involved currency. All were completed through checking accounts. This series of deposits caused the total supply of checking account money to expand.

This expansion of the money supply does not continue forever. A deposit in a checking account can increase the money supply by about 5 times the original amount. Several factors stop the process of expansion or even reverse it.

First, federal law requires the bank to keep a percentage of its demand deposits in reserve, usually 10 to 20 percent. Banks cannot loan out all of the money people deposit. After John Winslow’s original deposit, each successive deposit was less.

Second, expansion will stop if the bank stops making loans. Lending may cease if the bank cannot find any more people it believes will be able to repay a loan. Also, if people stop putting their money into checking accounts, the bank will not be able to make loans.

Finally, if many people suddenly withdraw their money all at once, the bank must do more than stop making loans. It will have to start calling for payment of its loans so that it can increase its reserves.

 

Forms of money.

Everybody knows that there exist several forms of money. But few people can name them. I’ll try to encompass all of them to you.

In the United States most money is in the form of checking accounts. A checking account is a bank account in which money has been deposited. A withdrawal can be made at any time using a check. Check is a written order to a bank to pay a certain amount of money to the person or business to whom the check is made. Depositing $100 in a bank checking account increases the sum the depositor can draw on by that amount. From then on, the depositor need not have $100 in paper bills or coin in order to buy something worth $100. Simply writing a check will cover the cost. By the way, checking accounts are also known as demand deposits, because their owners have the right to demand them from the bank whenever they wish.

Sometimes time deposits are considered a form of money. A time deposit is a bank deposit that can be withdrawn at a certain time in the future, or on advance notice. Time deposits cannot be withdrawn using a check. I can add that a savings account is an example of a time deposit. When savings accounts are used as a store of value, savers deposit their money for use in the future instead of in the present. The bank book is a record of a person’s deposits and percentage the bank paid for use of the money.

Now I would like to come back to checks. It’s common knowledge that almost all firms use checks to pay their accounts, and most people also are paid by check. But that does not mean that checks are substitutes of money. Checks are more convenient and safe to use than currency. They are flexible in that they can be written for any amount. They provide a legal record of financial transactions. However, although most people and institutions accept them, checks are not legal tenders. Legal tender is money that, by law, must be accepted in payments of debts. So, on balance, the only legal tender in the United States is currency. Just as a matter of interest I’d like to stress that several other things are used like money. Credit cards are a common way to purchase goods and services. If the card is used to buy gasoline, the gas station will record the name and number and send it, along with the bill for the gasoline, to the credit card company. The credit card company will then pay the gas station and send the buyer a bill for the amount of the gasoline. Credit cards are not money, though, since they can be traded only for certain products from certain companies. As for money, it can be exchanged for anything.

Types of bank accounts.

 

People may have three basic types of bank account:

· current account is the most popular one which is used for handling day-to-day finances. It is used for everyday transactions such as paying bills, transferring money and drawing cheques. Though the current account holder doesn’t usually receive any interest on the money he pays in this type of account has some advantages. Firstly, it enables people to hold their money in a safe place. Secondly, this type of account allows people to withdraw their money at any time. Thirdly, it provides people with a cheque book so that they don’t have to carry much cash.

When a person intends to open a current account he should see the branch manager who wants to get the necessary background information about the applicant. As a rule, the banking officer wants to know the applicant’s occupation and place of work. Probably he will want to have a reference from the applicant’s employer. Then after the interview if the manager is satisfied with the applicant’s status he will approve the application, arrange for the applicant to be given a cheque book and arrange for a monthly statement to be sent to the account holder.

The current account holder can have an overdraft on this type of account, i.e. he can withdraw more money than he has in the account.

· deposit account is another popular account which is really designed for saving money and may be used for short-term, small savings. The money paid into this type of account earns a small amount of interest. The customer receives no cheque book and therefore he cannot pay bills so easily as with the current account. Though it is not possible to draw cheques or have an overdraft on this type of account, it has some advantages over a current account. Firstly, it is easier to open a deposit account than a current account because there is no need to have an interview with the branch manager. A client only has to fill in a form and deposit the minimum amount of money required by the bank. Then the client is provided with a pass book. It is necessary to bring it to the bank every time the client wishes to withdraw or deposit money as the pass book is the client’s record of the account. Secondly, a deposit account earns for the account holder. It occurs because the bank invests the money that the depositor pays in and in return the bank pays the client interest.

But the client should remember that if he wants to take his money out of the deposit account he mustn’t forget to give a bank a week’s notice. If the client wants his money immediately, he loses some interest.

· investment account may be used for larger, long-term savings. Money paid into this type of account usually earns more interest, but the customer can’t get his money immediately. He has to inform the bank in advance when he wishes to withdraw the money. The customer may have a fixed-term account. In this case the account holder may not be able to withdraw the money for a certain period agreed with the bank, for instance, 3-5 years.

 

Making a personal budget.

When you live on your own you understand that something should be done with your unlimited wants and limited resources. You should use your income as effectively as possible. Choices must be made concerning spending and saving. You never know whether you can afford another outing, or a disco, or a concert. Then you come to the conclusion that you must develop a useful personal budget. And if you want to do it you should keep track of your actual income and expenses for a month, and, of course, at first you have to clear out what should be recorded.

Money resources may include allowance, part-time jobs, baby­sitting, errands, interest on savings. You must list all sources of income. And it means that if somebody presented you with a sum of money on an account with a bank, so you can rely on interest on savings and allowance have to be included.

Then you should record how much you spend for food, enter­tainment, clothing, college supplies, personal care, transportation, and miscellaneous items. You wonder in which category you spend the most and the least. You think that you should decide what changes to make in the budget if you want to reduce your expenses.

You have to understand that there is some difference between fixed, optional and flexible expenses. Fixed expenses are set in advance and must be paid regularly (e.g. rent payments, tuition, higher purchase installments). Flexible expenses are necessary but change with circumstances (food, clothing, college supplies). Optional expenses vary and are not always necessary (entertainment, personal care).

Thus you can compare your income and expenses. And of course you understand if you want to live good expenses should not be higher than income.

 

Comparing prices.

Learning to make informed decisions about buying food will result in economic skills that last a lifetime. In my talk I would like to single out the steps in decision-making.

To understand how buying decisions are made I would advise you to make a shopping list of 10 basic food items, then go to several shops and find out the range of unit cost for each item. To begin with you should consider the first step “What kind?”. The variety of a certain commodity in a supermarket is often confusing, there are dozens of different brands. The next step under discussion should be “How much?”. After deciding what kind of commodity to buy, consumers generally consider the price. I would like to point out that another consideration figuring into what we buy is the quality of the product, thus I suggest that the next step can be: “How good?”. Sometimes evaluating the quality of a product can be difficult for the customer. For instance, most food products list natural as well as artificial ingredients. Some provide nutritional information.

Being a wise consumer is never easy. A wide variety of prices, brands, sizes and advertising gimmicks influence you when you enter a store. Firstly I would advise you to decide what kind of product you need. The occasion or purpose can determine the kind of product you will buy. If you know that your friend, who loves apple juice, is coming to visit you, you might want to get some for her. Eventually there are many things that influence what you buy. I would like to attract your attention to the point that some stores indicate the unit price for the items on the shelves. Please take into consideration that although quality or kind of a product contributes to the price, generally the larger the quantity, the less per unit cost. Buying in quantity can often help us spend less.

At the same time there is one more very important factor influencing buyer’s decision – advertising. You can trust brands that have been around for a long time but maybe you want to try a newcomer. Also the consumer’s decision is a matter of personal taste. In the end, the decision what to buy and at what price and quality level is a personal one.

Still, let’s assume that we are smart consumers and know how to use advertising for our purposes. My personal opinion is that ads are usually one-sided and emphasize only the good qualities of a product. You probably know how ads try to attract consumers by appealing to their emotions. For example, a chocolate ad shows people tasting a delicious bar of milk chocolate with an immense pleasure, diet bread ad shows thin people playing at the beach, and so on and so forth.

In conclusion I’d like to stress that many factors influence buying decisions, and choices are not simple for consumers. It’s absolutely true that smart buyers must obtain product information and then compare and evaluate that information.

 

Finding a job.

When you start looking for a job for the first time you wonder where you should start looking for job opportunities, what your first steps should be. You wonder if you need a resume and for what you are qualified.

At first, I would like to explain to you that the market place does not hire just anyone. In fact teenage employment is traditionally twice as high as overall unemployment rate. Where you look for work and the techniques you use in applying can be the difference between getting the job and remaining unemployed. I think that to begin with one should use all possible sources when job-hunting. I assume that one of the simplest but often overlooked sources is word-of-mouth. You should let your friends and relatives know you are looking for a job and ask them whether they know of any job openings. Another advice is to go to adult education center. There are full-time and part-time courses and one can even do correspondent courses, working for a qualification at home. Another successful way of looking for a job is to go to the supermarket near your home. You can ask the manager whether any jobs are available now or in the near future, fill out applications for jobs, leave your name, address and telephone number so that they can contact you if any jobs become available.

Besides, I have heard that newspaper ads are a good source of job openings, as well as school councillors and teen job services. Often schools have bulletin boards where job openings are posted. Also public bulletin boards in stores list job openings. I think it might be a good idea to use private job agencies. But in this case you should be very cautious. Unlike public job agencies, the private firms charge a fee, sometimes a percentage of your salary. Anyway, whichever source you use you shouldn’t be shy about seeking the job.

The second step in job-hunting is to fill out an application. After you find a job opening, you will have to show your potential employer why you are the right person for the job. In a sense, you are now selling a product – yourself. You want the employer to purchase your abilities than those of someone else. Often an employment application requires that you give names of friends or acquaintances as references and your prospective employer may contact these people to find out about your work habits and skills. Then you put one more step into your plan – “Write a Resume”. I am sure that it is very useful to have someone else to read your resume. In my opinion these three steps are the most important ones in job-hunting.

I would also like to point out that usually the employer asks you to fill out an application. You should take into consideration that this step can be crucial. The potential employer must select candidates to interview, often using the application as a guide. I’m also sure that the applicant should read the application form through before beginning to write. Make sure you understand what information is being requested, write neatly and provide complete information. I would also like to attract your attention to the following: employers looking for permanent, full-time workers often require a resume – an outline of my educational and employment background – in addition to an application. Some employers may want a resume for part-time employment. I would also emphasize that writing a resume while you are still student provides practice at a skill you will need again in the future.

There is one more step that can affect an employer’s decision – that is an interview. I advise the beginner in job-hunting to fins out something about the firm before going to the interview. I would also advise you to be on time, dress neatly, comb your hair, be polite, answer questions thoughtfully, speak clearly, and when you leave, thank the interviewer for talking to you. Remember: most people hire people they like, rather than the most competent person. Mind the proverb: “When you are smiling the whole world smiles with you”.

 

Financing a loan.

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. They also find that 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. Other goods, such as furniture, cars or computers, last longer. Sooner or later, though, consumer goods are used up. Bananas are a typical example of perishable goods, by “perishable” we mean goods which cannot be stored for any length of time without going bad. Most foodstuffs are in the perishable category.

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. A person who makes lemonade and then sells it is producing goods. A person who shovels snow during the winter or clerks in a store is providing a service. Students working after school or during the summer earn money to buy some of the things they want – records, books, or a car. They are learning about the role of the producer.

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.

The economy as a whole, like an individual, can produce only products for which it has the right kind of resources. 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 tend to be unlimited, but human, natural and capital resources are, unfortunately, limited.

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.