Money Doesn’t Grow on Trees

Goods vs Services Goods are real things that people can touch such as notebooks, bananas, and soap. Goods can be large like a car or small like a stick of gum. A service is work done for other people. Both adults and children do services. A dentist’s work is a service. They clean your teeth, to keep them healthy. Washing cars, mowing lawns, and cutting hair are all services as well.

Producers and Consumers Producers are people who sell goods and services. Mechanics sell the service of fixing cars and farmers sell the vegetables that they grow. Kids are producers too. Kids can sell lemonade or cookies that they make. Consumers are people who buy and use goods and services. Consumers choose what goods and services they buy. Producers determine the price of their product based upon the supply and demand.

How Much Does an Item Cost? Supply Demand Demand is how much of something people want. Demand can be high or low as well. When many people want a specific good or service then the demand is high, but when not many people want a particular good or service then the demand is low. Supply is the materials that are made available to you and me. A supply can be large or small. When the supply is big you must make a choice of what to buy. When the supply is low, it means that there are fewer choices to choose from.

High Supply and Low Demand When there is a big supply and a low demand, then stores will lower the price. Sometimes people wait for an item to go on sale, before they will buy it.

Low Supply and High Demand When an item has a small supply and a high demand, then the producer will raise the price that it costs to buy that item. Sometimes people are willing to pay more for a rare item.

Scarcity Scarcity is the measure of supply. Think of something you really like. Now imagine you can no longer get that item. If that were the case, then the item would be scarce. That means that there isn’t a lot of that item or it isn’t always available. When something is scarce you have to make a choice. Sometimes people have to decide how much they are willing to pay for an item. When an item is scarce or the supply is low, then it might cost more to buy.

Opportunity Cost People have to make choices when purchasing an item. When people make the choice there is a tradeoff, because when you choose to do or purchase one thing, you ultimately choose not to do or purchase something else. This tradeoff is called an opportunity cost because a person has to choose one good or service over another. For example, money cannot be saved and spent. If someone chooses to spend their money they have, an opportunity cost in that the money they spent cannot be saved.

Types of Resources There are three types of resources: human, capital, and natural. Human resources are people who are involved in the production process like a bus driver, teacher, farmer, and firefighter. Capital resources are man-made things that are used in the production process. Examples are computers, pens, tools, and cars. Natural resources are resources that come from land like oil, water, coal, and trees. These three types of resources are used in the production process.

What is an Entrepreneur? An entrepreneur is a person who comes up with a good or service or has an idea of how to make a good or service better. That person finds the money, time, and resources needed to produce the product. They are also willing to task risks. Milton Hershey took what he loved doing most, making candy, and turned it into a successful product, Hershey’s Milk Chocolate.

Ad Detective, by clicking on the link. Marketing a Product Once an entrepreneur creates a product, then they must market, or make other’s want, their product. When entrepreneurs market their product, they are creating a demand for it, by making others aware that their product exists. Entrepreneurs market their product to convince their consumers, or people who buy products, that their product is unique. Advertisers use several methods to encourage consumers to buy their product. Bandwagon: This method makes consumers believe everyone is buying their product. Comparison: This method attempts to show that one product is better than another. Security: This method makes you feel that the product would make you feel safer. Testimonial: People testify, or speak, about how a product has changed their life. Celebrity Testimonial: A celebrity, or famous person, speaks about how a product has changed their life. Health: This method explains how using a product would benefit your health and well-being. Try being an Ad Detective, by clicking on the link.

Global Trade Nobody can produce or make everything they need. Therefore, countries rely on each other to get those goods and services. For example, much of the clothing we wear is not made in the United States. Trade allows the United States to get things that they do not make such as clothes from other countries. If two individuals or countries are involved in a trade, it is because they both feel that they will benefit from the trade.

Specialization Specialization is the division of tasks associated with the production process. Each person focuses on a specific task, therefore specializing in that area. Specialization allows more products to be produced from the same set of resources. Specialization allows people to get better at a task improving the overall quality of a product.

Understanding Economics

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