The Economic Way of Thinking

Economics is both “the science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind” (dictionary.com). It also involves financial considerations that we make individually and collectively. The focus of this project is to look at both aspects of economics in general and to view economics with a historical perspective.

So what does economics have to do with us? The answer is “everything.” Following are some examples of how economics affects us.

The National Council on Economic Education offers the following information about the economic way of thinking.

1. Resources are limited.

a. Time is limited. You want to play football and soccer. They both practice after school. You have to make a choice because “time is limited.”

b. Space is limited. You want to have a swimming pool and a tennis court in your backyard. You only have room for one. You have to make a choice because “space is limited.”

c. Money is limited. You have $25. You want to buy a sweater, a new game and a pair of jeans. Each costs $25. You have to make a choice because “money is limited.”

2. People cannot have everything that they want.

3. People must make a choice.

4. Every choice has a consequence.

a. You have the choice to do your math homework, practice piano or watch your favorite show. If you choose to do your homework, the consequence is that you give up your second choice. What you don’t choose is called the opportunity cost. It’s the next-best or second-best alternative. Time is limited.

b. Your mom gave you money to buy something for your room. You can get a desk to help you study, a bookshelf to hold your books and PlayStation or a double bed so that you can sleep better. You only have room for one more item. Decide how you would rank these choices — first, second or third. The opportunity cost is what you don’t choose. It’s the next-best alternative. Space is limited.

c. You go to the fair. You can buy a hot dog and fries, a stuffed animal for your friend or a ride on the roller coaster. You don’t have enough money for all three. The opportunity cost is what you don’t choose. It’s the next-best alternative. Money is limited.

5. People respond to incentives.

a. An incentive is something that causes you to give a greater effort or to do some action. A paycheck is an incentive that causes you to babysit or cut the grass. Getting an “A” on your report card is an incentive to study.

Source: Used with permission. Financial Fitness for Life: Shaping Up Your Financial Future, copyright ©2001, National Council on Economic Education, New York, NY. All rights reserved. For more information visit www.ncee.net or call 1-800-338-1192.