Many people are talking about the economy and giving their ideas on whether it’ll get better sooner or later (or if at all). Knowledge is a tool that allows us to make intelligent decisions. Learning about the economy and basic concepts protects us from irrationally panicking. One roadblock for many, though, is the lack of time. To make it easier, the ECON 101 series was created.
Each article will focus on an economic topic with particular concepts that affects readers. The examples are kept simple as the goal is to explain concepts. We’ll have no long discussions on theories or history, but will give some ideas on how it applies to you, your family, and your community.
The goal is to help you become more proactive and knowledgeable with your finances. As always, the success of the series depends on you and your feedback.
Do you have any questions or suggestions? Feel free to email me or tweet me.
Do you want to share your story, expertise, or experience? Please leave a comment. I’ll give credit to those who give better examples as I update posts.
Photo Credit: moriza
Scarcity: Unlimited Wants with Limited Resources
Scarcity is a relatively easy concept because we all experience it in some fashion in life. As families we want a nice roof over our heads, plenty of food to eat, fashionable & lasting clothes to wear, entertainment options, a good education, and a vacation once in awhile. The example of scarcity is our income for the month.
If you have an income of $2300 a month for a family of four, you have to decide how you’re going to spend your money. If you’re a family of two, you have a bit more room. Either way, though, you can’t spend more than the $2,300 without harmful consequences.
When you grocery shop, you may notice that certain fruits and vegetables fluctuate in price as some are in season and others are not? When do you think you’ll get the best deals? You can usually find sales on fruits and vegetables that are in season as crops are more abundant.
People, families, cities, and countries must make decisions over how to allocate their resources. States are having a problem as they have growing wants but decreasing revenues as the economic crunch is hitting many sectors such as housing and jobs.
Economics is the study of production, distribution, and consumption of goods and services. The goal is to basically use your limited resources in the best (productive) possible way.
Opportunity Costs & Trade-Offs: What You Give Up to Get Something Better
The opportunity cost is what you gave up to take an opportunity. It’s the next best alternative to the choice you decided. As we saw before, families make choices on where they spend their money. Some families may not have the most fashionable clothes so they can live in a bigger home.
A common example is a person that decides to go to college to obtain a 4 year degree. The cost of that decision is the lost wages for four years they could’ve made if they worked right out of high school. Why should some choose college? If their financial circumstances would be better with college than without. For some, getting a certification would be a better choice for their field.
States also have to weigh the opportunity costs and examine the trade-offs of their financial decisions. Schools, roads, and health care are major expenses in a budget. Some states,though, are still spending as if there isn’t a shortfall.
Economics affects us all and the more we know and understand the better we can make decisions.
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Great post! An excellent overview of the basics of economics. And it does provide a certain amount of insight into how we got to where we are today. I find it interesting, the point you make about spending as if there isn’t a shortfall. That’s sort of the idea our leaders are adopting: Spend a lot right now, as if we aren’t going to have to pay it back later.
@Miranda: I find it a bit ironic that those who should know more about the economy don’t always use that knowledge. I hope to continue the series for a bit to help others understand what’s being said in the news.
I think this will be an excellent series you have established and it’s nice to reiterate the basics to ensure we understand them. I haven’t been in an econ class in yrs, but it’s nice to keep in touch with things. Opportunity costs is a term people think they understand, but vaguely do. So many decisions in our life have an opportunity costs, and you have to weigh your options when making those decisions.
Check out Craigs last blog post..Download Suze Orman’s 2009 Action Plan
I appreciate your support Craig! I hope this series will help people focus more on economic news, not just the Wall Street clips. Getting an idea of big picture can be a huge help.
This is a good idea – I think it helps to understand the ‘big picture” or theory behind the economy and our budgeting, spending etc.
Check out ABCs of Investings last blog post..Stock Splits
Thanks ABCs! I’m working on the supply and demand topic next. I’m trying to incorporate news stories as examples.