One of the most important wants you have is that of food. To satisfy this want you have to create a supply using your resources but because your resources are limited you have to allocate them properly in order to meet your family’s demand for food. To do so you are faced with two choices:

1. You can use your cash resources (which are limited) and buy vegetables at the grocery store.

Or

2. You can ask your other resources – yourself, your spouse and your allowance-earning children – to create a garden utilizing the non-cash resources of manual labor, tools, soil and seeds.

If you choose the second option, the cash you pay your children in the form of an allowance will result in labor that produces more food than a trip to the grocery store with the same amount of cash would. This means you made a choice to allocate your non-cash resources toward the production of goods so that you have more cash available for wants that cannot be produced out of those non-cash resources.

And that sums up the definition of economics: society’s allocation of limited resources toward the fulfillment of their wants.

Let’s start with common economic terminology as it relates to your household economy. There are six major factors that impact the study of economics and they are:

Resources: In your household economy, this would be your cash, credit, jewelry and other valuables which can be directly exchanged for goods and services. Your resources also include those items or people who can be utilized to produce goods and provide services that fulfill your household wants. These include tools, soil, seeds, allowance-earning children, yourself and your spouse.

Wants: Wants include your needs (like food and clothing) and your desires (like computers, games and magazines). Wants can be obtained by using resources to produce or buy them.

Demand: The demand for your household is the amount of a certain good or service your household needs to satisfy a want.

Supply: The supply for your household is the amount of goods and services that are available to you as well as the amount you can reasonably produce.

Scarcity: Scarcity is the reality that you cannot have everything you want because you have limited resources to exchange for your wants.

Allocation: Allocation is how you decide to use your scarce resources in order to obtain wants.

In Part 2 we’ll work this terminology into a real example.

It’s not long before we aren’t even catching pieces of economic relevance in the conversation happening before us and instead are simply nodding our heads and trying to stay awake.

Well folks, that ends now. Okay, actually it ends on Monday when we start our new series–Everyday Economics. In this series we’ll break apart complex financial and economic theories, terms and definitions and we’ll make them easily understood. We’ll even try to make the topics entertaining and show you the role they play in your everyday life.

Look for our posts in the new series Everyday Economics every Monday through Friday.

This is undoubtedly a milestone for EconGuru in that, content can be produced at unprecedented speed and quality. The entire structure is remodeled and most important of all, more authors can join in the team to make EconGuru the go-to brand of Economics and Finance knowledge base. A knowledge base and library with comprehensive articles, guides, diagrams and data for introductory and intermediate learners, workers as well as teachers.

Tune in. We will write a world of Economics and Finance that is so intriguingly different from that by the textbooks.