Define economics using the following terms: allocation, distribution, goods, resources, production, and services.
One way to define economics using these words is to say that economics is the study of the allocation of limited resources to the production and distribution of goods and services that are produced in order to try to satisfy people’s unlimited needs and wants. Let us examine this definition to see what the important words mean.
Resources are the things that can be used to make goods and services. These are usually divided into three categories. The categories are land (natural resources), labor (human work), and capital (things, like tools, that are used to actually make the goods and services). Resources are limited. There are not enough resources to produce everything that people could conceivably want.
Resources are used to make (produce) and distribute goods and services. Goods and services are the two categories of things that consumers might buy. Goods are tangible things that you can pick up and leave the store with. An example of a good is a smart phone. Services are things that people do for you. For example, part of what you pay for in a restaurant is the service that the cooks do in preparing your food and the service that the wait staff does in delivering the food to you. These are not tangible things as you cannot pick up the cook’s actions and take them home.
One of the things that we have to do in any economic system is to allocate resources. If I have ten farm workers, how many will work raising cattle and how many will work growing corn? If I have a certain amount of corn, how much of it will go to feed animals and how much will be made into ethanol? Someone has to make these types of decisions.
Economics is the discipline that studies these issues. It asks how resources get allocated. It asks what sorts of decisions people make when trying to fulfill their unlimited wants and needs with the limited resources that are available to them.