Lesson: What Is Economics and Why It Is Important 

What Is Economics, and Why It Is Important

FOCUS: As you read, pay attention to the impact of scarcity on a society.

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  • Economics is how people make decisions about money and how much money they have.
  • Economics is used by individual people, families, businesses, and all of society.
  • Scarcity is when people need goods, services, and resources, but there is a limit to what is available for them.
  • Resources that can be limited include food, shelter, jobs, materials, and time.
  • There is a limit to what is available, and people need to consider what they have, what they need, and what they can access.

Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions, or societal decisions. If you look around carefully, you will see that scarcity is a fact of life. Scarcity means that human needs for goods, services, and resources exceed what is available. Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want, but they exist in limited supply.

Of course, the ultimate scarce resource is time—everyone, rich or poor, has just 24 expendable hours in the day to earn income to acquire goods and services, to spend their free time, or to sleep. At any point in time, there is only a finite amount of resources available. Think about it this way: In 2015, the labor force in the United States contained over 158 million workers, according to the U.S. Bureau of Labor Statistics. The total land area was 3,794,101 square miles. While these are certainly large numbers, they are not infinite. Because these resources are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.

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