Economics is
the study of the allocation of scarce resources among competing and insatiable needs so as to maximize welfare.
We assume that people act in their own rational self-interest. People make the choices they believe leave them best off.
Economics resources are used to produce goods and services. There are three categories of economic resources:
- land - raw materials and natural resources
- labor - workers
- capital - buildings, machinery, factories, equipment
Each of the resources exists in a finite, limited quantity.
We assume that people have unlimited wants. There is always something that people want to have more of. Since we have a limited amount of resources, we can produce a limited amount of goods and services. No matter how large that amount is, we cannot produce enough to satisfy everyone's unlimited wants. This is known as scarcity and much of economics looks at how people cope with scarcity.
