Economics Economics is the study of how people choose to use resources. Goods are items that people buy. Services are work done for other people for a fee.

Needs and Wants A NEED is something necessary. A WANT is an item that people do not have, but they would like to have. One basic problem in economics is scarcity. SCARCITY occurs when people want or need more of something than there is.

CHOICES To obtain things they want, people and governments make choices. The choice of doing one thing rather than another is called a trade-off. When a person spends money on a WANT, like a vacation, instead of saving the money for a house, it is called an opportunity cost.

Profit When European nations decided to pay for voyages of discovery, they faced an opportunity cost. They were hoping, however, that they would make large profits on their investments. Profit is the money that remains after all the costs of production have been paid.

Supply and Demand Supply is the ability and willingness of sellers to make products and services available for sale. Demand is the amount of goods and services that buyers are willing to buy.

Law of Supply According to the law of supply, when the price of an item rises, so does the supply. The increase in the price acts as an incentive to the supplier to produce more of that item. An incentive is something that encourages a person to take a certain action.

Specialization Specialization is the choice by an individual, a business, or whole country to produce certain items as opposed to others, or even one part of an item. Specialization can improve people’s standard of living. It can also increase productivity. Productivity is the amount of goods and service that a person or business can produce in any given time span.

Trade Trade is the exchange of one item for another. The most basic reason for trade is that people cannot get all the things they want or need by themselves. Before currency (money) was used, people used a barter system. In a barter system, items of equal value are exchanged back and forth.

Voluntary Exchange For the barter system to work, both traders had to be willing to make the exchange and feel that they were better off because of it. This is called voluntary exchange.

Technology Technology also benefits productivity. Technology is the use of science and inventions to improve everyday life. In the early 1900s automaker Henry Ford began to use the assembly line to produce cars.

Assembly Line An assembly line is a factory system in which a worker makes only part of a product. On Ford’s assembly line, a car could be produced in 90 min. instead of 12 hours. Overall productivity went up by 800%.

Computers Beginning in the 1980s, computers have had a great effect on productivity in many industries. Buyers and sellers can also now deal in goods over the internet. Advances in transporting goods have been made around the world. Goods are now bought and sold in global markets.