Yesterday, In Part 1 we discussed economics terminology as it relates to your household budget. Today, let’s create a real example of the terminology in action.
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.
