Economics is the study of how people, businesses and governments make choices about scarce resources. The basics are scarcity, needs and wants, goods and services, supply and demand, and how money and trade move resources around.
This page is a hub for beginning economics topics. It introduces each idea briefly and links to a page with more depth where one exists.
What is scarcity?
Scarcity means there are not enough resources to give everyone everything they want. It forces people and societies to make choices, according to Federal Reserve Education.
Every choice has a cost, even when no money changes hands. Economists call the next-best option you give up when you choose something else the opportunity cost. Choosing to spend an hour reading means giving up that same hour for something else, like playing outside.
This section introduces the idea in general terms. It doesn’t cover how economists measure scarcity for a specific resource or market.
What is the difference between needs and wants?
A need is something required to survive, such as food, water, shelter and clothing. A want is something that improves life but is not required to survive, such as a video game or a second pair of shoes.
The line between the two is not always sharp. A coat is a need in a cold climate, but a fifth coat in the same closet is a want. Scarcity forces people to prioritize needs over wants when resources are tight.
This section is a simple starting definition. It doesn’t cover how needs and wants differ across countries or income levels, which is a much bigger topic.
What is the difference between goods and services?
A good is a physical item you can own, like a book or a bicycle. A service is work someone does for you, like a haircut or a doctor’s checkup.
Most things people buy and sell fall into one of these two categories, though some purchases include both. Buying a bicycle is a good. Paying someone to repair it is a service.
This section covers the basic definitions, not the more detailed subcategories economists sometimes use.
How do supply and demand work?
Supply and demand describe how buyers and sellers push prices toward a balance between what people want to buy and what sellers offer. It is sometimes called the heart and soul of economics, according to Federal Reserve Education.
When something becomes scarce and demand stays the same, its price tends to rise. When supply grows faster than demand, prices tend to fall. A simple example from trade: when people freely swap goods without money, they are still weighing supply and demand, which our page on bartering covers in more detail.
This section describes the basic pattern, not the many exceptions and real-world complications economists study.
What role do money and trade play?
Money is a tool that makes trade easier, replacing the need to swap goods directly for other goods. Trade lets people and countries specialize in what they produce well and exchange for everything else.
Bartering, trading one good or service directly for another, is one of the simplest ways to exchange goods, and people have used it alongside other systems throughout history. It does not describe every early economy. Money solved a common problem with bartering: finding someone who has what you want and also wants what you have.
This section is a basic introduction. It doesn’t cover banking, currency exchange, or international trade rules.
Try it: a simple price and percentage activity
Prices often change when supply or demand shifts. Try this problem, then check your work with our percentages page if you need a refresher.
A toy costs $10. A shortage of parts raises the price to $12. What is the percent increase?
Show answer and reasoning
The price rose by $2 ($12 minus $10). Divide the increase by the original price: $2 divided by $10 equals 0.2, or 20%. The toy’s price rose by 20%.
For a hands-on classroom activity, try a simple trading exercise: give small groups of students a few different items and let them negotiate trades, then discuss why some trades felt fair and others didn’t.
For more, visit our social studies hub.
Sources
- Federal Reserve Education. There Is No Such Thing as a Free Lunch
- Federal Reserve Education. Supply & Demand: How Do Markets Determine Price?