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Introduction to
What is Economics?
• Economics: the study of the production,
distribution, and use of goods and
services.
• Economic systems can be either large or
small. The term “economy” can be used
to refer to the economy of the country,
the state, a city, a household, and even
individuals.
The basic economic problem in
society is scarcity.
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When something is scarce it means
that there isn’t enough of everything
to give everybody what they want.
The opposite of scarcity is
surplus.
• A surplus exists when the supply of
something is greater than the demand.
What is supply and demand? How does it impact pricing?
(stay tuned to find out)
Goods:
the actual
products that
people buy
and sell.
Services:
work done by
professionals.
A person that purchases a good or
service is known as a consumer.
Consumers by goods and services to
satisfy economic wants and needs.
• Needs refer to items or services which
are necessary for survival.
• Wants refer to items which are nice to
have, but are not necessary to survival.
What are some examples of needs? Wants?
Examples of Needs
Examples of Wants
• Food
• Automobiles
• Clean water
• Entertainment (movies,
• Shelter
concerts, videos,
games, etc.)
• Clothing
• Airplane travel
• Medical care
• Furniture
• Heat
• Appliances
• Designer clothes
What determines the price of
goods? Let’s find out more
about supply and demand.
• Gourmet food
• “Junk” food
Supply and Demand
• The supply of goods is the amount of products
available to be purchased.
• The demand for goods refers to how many
people want a product and can readily afford
to buy it.
Supply
Demand
Situation
Price
High
High
Low
Low
High
Low
Low
High
Balance
Surplus
Balance
Shortage
Stabilizes
Decreases
Stabilizes
Increases
When there is a
shortage, stores
can raise prices and
earn a greater
profit. This is bad
for consumers
because they have
to pay more.
When there is a
surplus, fewer people
want the product
being sold, so the
store must drop the
price in order to sell
its stock. The store
looses profit, but
the consumer
benefits because
they pay less.
Through this system of supply and demand, little
government interference is necessary because
markets stabilize themselves.
• In the past, most people bought and sold
things through barter. Barter is the direct
exchange of goods and services.
• Now money is used to get what people want
rather than directly trading for it.
• Through the exchange of money for goods and
services, people are able to determine the
value of what is being offered and pay exactly
that amount rather than having to give or
receive more or less than desired.
Learn more about the evolution of the money system at:
http://www.usmint.gov/about_the_mint/mint_history/
When you purchase something from
someone, the price you pay for it is
referred to as the item’s cost.
However, the true cost is not just the
money you paid for it, but also what you
give up to get it.
What is given up when an economic
choice is made is known as the
opportunity cost.
• Every time you make any kind of
decision, there is an opportunity
cost.
• When you consider the
opportunity cost of a purchase,
you are better able to make an
informed decision and use your
resources efficiently.
Review Time!
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When there is a limited
supply of something, there
is scarcity.
When there is greater
supply than is needed,
there is a surplus.
Wants are luxuries.
Needs are those things
necessary for survival.
When supply is high and
demand is low, prices go
down.
When supply is low and
demand is high, prices go
up.
The goal of supply and
demand is for the two to
balance, stabilizing prices.
• Barter is the direct
exchange of goods and
services.
• The money system is more
reliable and efficient than
barter.
• Opportunity cost is the
loss of an opportunity
when you choose to do (or
buy) something else.
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