Instead of giving you a definition of economics, I’m going to give you an example that works on a microeconomic level but also helps explain macroeconomics by way of analogy. This week, we will look at your home and household budget as its own economic ecosystem.
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.
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.