Economics is the study of how individuals use scarce resources to satisfy their needs (Lee, et al). There are a number of concepts that are associated in learning economics. These include limited resources, opportunity cost and trade-offs among many other factors of consideration. To understand and be able to make wise decisions in the purchasing of any good and service, one should better understand these concepts of economics. They are also imperative in the production of goods and services which is the primary aim of studying economics (Salaman, 1).
Money and time are resources that are finite (Lee, et al). They are therefore called limited resources. A scarce resource is a resource that has a high demand and therefore proper decision making is needed to ensure that they are used optimally. Economics involves the distribution of resources so that they can satisfy individual needs. Money is scarce because it is limited in supply and therefore it should be used wisely to satisfy human needs (Lee, et al). For instance, if an individual has $ 500 in the pocket, he will choose to pay for his rent rather than buying beer for himself.
Time on the other hand is an economic resource and one needs to decide well on what to do at a certain time and what to do at other times. In our daily lives, we often make decisions that impact the purchase of goods and services. These decisions depend on what our needs are and what are the resources that are at our proposal. Making decisions in economics is a very vital stage when it comes to purchasing of goods and services (Salaman, 1). An individual should make a decision that he or she will not regret when the scarce economic resource runs out.
To make a good decision, one should really understand some concepts in economics like the price theory. Price theory makes one understand the prices of commodities that are in the market. When one understands the price theory, he or she can make the correct decision on what to buy at what price without incurring many losses. Opportunity cost results after careful decision making (Lee, et al). It is the cost which is equivalent to the value of the best alternative that an individual sacrifices in doing something else.
By making a choice in whatever an individual does in life, he or she must incur opportunity cost. It can either be a marginal benefit or a marginal cost. For instance, an individual may have choices of either joining a masters program or getting employed in a company paying him $ 100,000. If the person decides to go for the masters program, his opportunity cost will be $ 100,000. Marginal benefit is defined as the benefit that is got by adding one extra unit in the level of activity (Lee, et al).
Marginal cost on the other hand is the extra cost incurred by adding an extra unit in the level of activity. Generally, since all consumers are assumed to be rational, they tend to minimize marginal costs and maximize marginal benefits. The difference between the two gives the net benefit. Trade-offs on the other hand is closely related to opportunity cost although it reallocates the amount of time or money to be spent (Cage). This implies that there is that money that is set aside for spending on maybe house expenses.
By buying less of what is not necessarily important and buying more of what is necessary, one shall have incurred a trade-off. It involves reallocation of money or time from what had been planned on (Cage). In conclusion, the study of economics helps individuals to determine on the type of choices they are to make in their daily lives. Deciding on what good or service to purchase may call for one to understand the concepts of opportunist cost, trade-offs and most importantly, have the knowledge of the scarce resources that are available to him or her.
Works Cited: Cage, Michael. The differentiation trade-off and marketing to values. 2010. Web July 14, 2010 from http://www. entrepreneurslife. com/thoughts/entry/the-differentiation-trade-off-and- marketing-to-values/ Lee, Kylen, et al. The scope and methods of economics. September 17 2006. Web: July 14, 2010 from http://www. econguru. com/introduction_to_economics/scope-method. html Salaman, Graeme. Decision making for business: A reader. London: SAGE Publication Ltd, 2002.