Introduction to economics

Economics studies how people allocate scarce resources among competing uses to satisfy wants. Scarcity means that available resources cannot meet all wants at once. It exists even in a wealthy community: a skilled worker has limited time, a workshop has limited space and a council has a limited budget. Scarcity is different from a temporary shortage at a particular price.

The economic problem requires choices about what and how much to produce, how to produce it, and for whom production is undertaken.

Resources include natural resources such as land and water, labour such as human effort and skills, capital such as tools and buildings, and enterprise that organises production and accepts risk. Money finances purchases but does not itself replace the physical resources needed to make goods. A service, such as bicycle maintenance, also uses resources and satisfies wants. Describing an activity as free to its user does not establish that it has no resource cost.

Opportunity cost is the value of the next best alternative forgone when a choice is made. Identify feasible alternatives, rank them, and name the best rejected use. Do not add together every rejected alternative. Opportunity costs may involve income, leisure, environmental quality or learning. A payment is an explicit monetary cost; sacrificing an unpaid afternoon can still have an opportunity cost.

Microeconomics examines individual consumers, firms and particular markets, including workshop prices and household choices. Macroeconomics examines economy-wide totals such as national production, inflation and unemployment. A rise in one repair shop's price is microeconomic; a sustained rise in the general price level is macroeconomic. Scale of geographical location is not the deciding test: a national market for bicycles remains a particular market.

Write responses by defining the relevant concept, applying it to a named resource or choice, and explaining the consequence. Accurate terminology makes the causal reasoning clearer than statements that everything simply costs money.