What is the economy?

The economy is the management of money, resources, spending and saving. The economy is concerned with the production, distribution (supply) and consumption (use) of goods and services. In the UK, a government is elected to manage the economy carefully in order to avoid any unnecessary spending or waste.

Wants, needs and scarcity

The main problems of economics are that the wants and needs of humans are infinite (without limits), but resources on this earth are finite (limited). This means that people fear shortages of goods and services. Humans have different types of wants and needs. Economics looks only at material wants and needs. People satisfy these by consuming:

Goods

Physical items such as food.

Services

Non-physical items such as heating.

Wants and needs are infinite because goods often need to be replaced, such as the dinner on your table or the shoes on your feet. Wants also change as new and interesting products become available and people become bored with what they already own.

Economists talk about:

Commodities

Commodities are both goods and services that are produced by using resources.

Free goods

A free good is available without the use of resources. There is no cost, for example, for the air that we breathe. Unfortunately, we know that most things in life are not free and cost resources, eg our books need trees to be made into paper, ink and other resources before they become economic goods.

If we now know that there are only limited resources available to produce unlimited amounts of goods and services for people, society has to make some important decisions, such as which goods and services should be made or provided. For example, do we make missiles or build hospitals and schools?