learning about economics

Learning AboutECONOMICS

★ © JILL S. RUSS ★ PAGE �1

Goods and Services

People need money to buy food and clothes. They need money to pay for a place to live. Most people get money by earning it, and that money is called income. When you earn an income, you work, which means you trade your time and effort for money.

People spend the money that they earn on goods and services. A good is anything that you buy that you can hold or touch. Food, books, and clothes are examples of goods. A good such as an apple might be used just once. Some goods, such as cars and paperclips, can be used over and over again.

A service is an activity we pay someone else to do for us. When we go to the doctor, we buy a service. Other services we buy are haircuts, movies, and piano lessons.

Sometimes the things we buy include both goods and services. For example, when we go to a restaurant, the food we buy to eat is a good. We also buy a service because someone cooked the food.

We all have a limited amount of money that we can use to buy the things we need or want. Because our money is limited, we have to make choices about how to spend it.

The most important things that people spend money on are needs. Needs are the things you must have to survive, like food, water, clothes, and shelter. Food is one of our basic needs. We need food to keep our bodies healthy and produce energy. Your home is a shelter that protects you from the weather. Your clothing is also a form of shelter. It protects your body against the weather when you’re outdoors.

After we buy the most important things we need, we might be able to spend some money on wants. Wants are things you would like to have, but aren’t necessary to live. Most of the things we have in life are wants. These are things that we could survive without, but we like to have them to make our lives more enjoyable. Video games, televisions, and nail polish are examples of wants. Some kinds of foods are wants because they do not help our bodies stay healthy.

Needs and Wants

ECONOMICSLEARNING ABOUT

People cannot always have all of the goods and services that they want. People have to choose which goods and services to purchase because they don’t have enough money to buy everything that they want.

When people purchase one good or service, they are giving up the opportunity to purchase another good or service. The thing that they had to give up, their second-best choice, is called their opportunity cost. Since buying anything always involves choosing what to buy, every purchase has an opportunity cost.

Suppose you have $1. You love two things: soda and gum. A soda costs $1, and a pack of gum costs 50 cents. If you only have $1, you can buy either one soda or two packs of gum. The opportunity cost of buying one soda is two packs of gum. You have to give up the gum in order to buy the soda. On the other hand, the opportunity cost of buying two packs of gum is one soda.

Choices


ResourcesProducers

and Consumers

Buyers and sellers interact to exchange goods and services to satisfy their needs and wants. A buyer is also called consumer, a person who buys a good or service. A seller is also called a producer, a person who makes a good or provides a service.

If you set up a lemonade stand, you are a producer because you made a product--the lemonade--to sell. You are a consumer, too, because you had to buy the lemons,

sugar, and cups you needed

from someone else.

Producers need supplies, equipment, and materials to make their goods and provide their services. For example, a farmer needs land, water, seeds, and tractors to produce corn. A hairdresser needs scissors, clippers, blow dryers, and shampoo to provide a haircut. The things that producers use to create goods and services are called resources. A resource is anything that is needed to produce goods and services.

Natural resources are things made by nature that people can use to create a product. Plants, wood, and water are all natural resources. Land for growing food, stone for building with, and gold for making jewelry are also natural resources.

Human resources are the people needed to produce goods and provide services. Teachers, dentists, waiters, and painters are all human resources. Human resources provide the labor to make goods and provide service. Labor is the physical and mental effort used to produce goods and services.

Capital resources are goods that are used to make other goods or to provide services. Tools, buildings, and machines are all capital resources. Capital resources can be big things like bulldozers, computers, and factories. Capital resources can be small things like pencils, buttons, and hammers.

Producers use all three kinds of resources when they produce a good or provide a service. The fruits, vegetables, and meats that restaurants buy to cook are natural resources. The stoves, ovens, pots, spoons, and knives that they use to prepare the food are capital resources. The cooks, waiters, and dishwashers are human resources.

Fish are a natural resource found in our rivers, lakes, and oceans. Different kinds of fish are used to produce many products such as sushi and canned tuna. The scales of some fish are even used to make shimmery nail polish!

These fishing boats in Juneau, Alaska are a capital resource. The nets, ropes, floats, and other gear on the boats are also capital resources used to catch fish.

Fishermen who work on the boat are human resources. They operate the fishing gear, letting out and pulling in the nets and lines. They remove the fish from the nets and then wash, ice, and stow away the catch.


People cannot produce all of the kinds of goods and services they want themselves. People trade with others to obtain the goods and services that they don’t already have. Trade is exchanging one good or service for something else. People trade with others because of scarcity. Scarcity means that you don’t have enough of the thing that you want.

Trading one good or service for another is called barter. In order for barter to take place, each person must want what the other person has, and must be willing to trade for it. When you make a trade, you have to give up something in order to get something that you want more. And when you trade, you have to find another person who wants what you have to trade. That doesn’t always work out.

If you were a farmer, you could trade your corn with the shoemaker for a pair of shoes. But what if the shoemaker already had enough corn and didn’t want to trade? You couldn’t get a pair of shoes. If you really needed a pair of shoes, you would have to trade your corn to someone else to get something that the shoemaker would take in trade. Maybe the shoemaker wants some potatoes. To get your pair of shoes, you would have to find a potato farmer who would trade potatoes for corn, and then go back to the shoemaker to trade the potatoes for the shoes. If the potato farmer didn’t want corn either, you would have to go to still another person to get what the potato farmer wanted.

The United States trades goods and services, too. Because we cannot make everything we need, we have to trade with other countries. We trade the goods and services we have for the goods and services we need. The United States exports, or sends its goods and services to countries all over the world. It also imports, or brings in goods and services from other countries.

Because the United States imports goods and services, people in the United States can have fruits and vegetables from other countries all year long. Because the United States exports goods and services, people in other countries are able to eat fruits like blueberries and apples that do not grow in their own country.

Specialization and Interdependence

The state of Florida produces a lot of citrus fruits such as oranges. Because oranges grow well in Florida, farmers in Florida specialize in growing citrus fruits. Specialization is making one kind of good or providing one kind of service.

Specialization helps people in many different countries to trade with one another. Although Florida grows a lot of citrus fruits, many other products are not as easy to grow or make in Florida. For example, Florida does not grow a lot of bananas because bananas don’t grow very easily in Florida’s climate. Bananas do grow very well in Mexico and Costa Rica. Citrus fruits, on the other hand, do not grow as well in Costa Rica and Mexico. So, Florida exports oranges to Mexico and Costa Rica. In return, Florida imports bananas from Costa Rica.

Specialization leads to interdependence. Interdependence means being dependent on other countries or people to produce the things that you don’t produce yourself. Columbia specializes in producing coffee. Columbia has the right resources for growing coffee beans easily. Those resources include the right weather, the right soil, and the right temperature of mountain water in which to wash the coffee beans. There is no place in the United States that has the right conditions for growing coffee beans, so the United States depends on other countries like Columbia to provide coffee for its consumers.

Trade


Supply and Demand Producers need to know how much of a good to make in order to

have enough products to sell and to trade. Producers have to decide how much product to supply in order to meet the demand for their product. Supply is the amount of something that is available. Demand is the number of people who want or need something. Producers want to have just the right amount of product available because the size of the supply will affect the price.

The price of an item will go down if the supply of the item goes up. In June, when lots of strawberries are ripe, there is an increase in the supply of strawberries available at the grocery stores. Because all of the stores have plenty of strawberries they need to sell before the strawberries go bad, the stores will lower the price of strawberries to encourage more consumers to buy strawberries.

If the supply of a good decreases, the price of the good will increase. In January, not many places have strawberries that are ripe, so very few grocery stores will have strawberries to sell. The store that does have strawberries will raise the price because consumers will not be able to get strawberries for a cheaper price at another store. Consumers who want strawberries in January might be willing to pay the higher price. But if the price is too high, consumers might not buy the strawberries at all.

A change in the demand for a good will cause a change in the price. If the demand for

an item goes down, the price for an item will go down. In December, the price of sunscreen goes down because not many people are going to the beach. The demand for sunscreen is low in December. On February 15, the demand for Valentine cards is very low. If stores have any supply of Valentine cards left, they will put the cards on sale. They hope that a very low price will make more consumers buy the leftover Valentine cards.

If the demand for an item goes up, the price will go up. The price of something will go up because the

seller thinks he can get more money for whatever he is selling. If more people want something, they will be willing to pay more for it. In June, the demand for sunscreen goes up, so the price of sunscreen goes up, too.

ADVERTISINGAdvertising affects demand, too. Sometimes people buy

products they don’t need because ads for them make people think the products will make their lives better. People buy advertised items because they want to look better, feel better, and fit in better. Advertising is used to create demand for a particular product. Many companies hire celebrities to advertise their products. The company wants you to think that you will have the same athletic ability or be as popular if you buy their product.


People spend money on goods and services. Goods are used up. Goods wear out. Sometimes you have to spend money to buy new things. But you should

try to save money, too. One of the most important things you can do with money is to save it. When you save money, you wait until later to spend it. People may save money to buy an expensive item, like a car. People save money to have in an emergency.

There are many ways to save money. Some people put their money in a piggy bank, or hide it under a mattress. A smarter place to save your money is in a bank. When you give your money to a bank, it’s called a deposit. When you deposit money in a bank, it’s kept safe in a special account with your name on it. When you use the money you’ve saved, you go to the bank and make a withdrawal.

When you let a bank keep your money safe, the bank lends your money to other people! You can still get your money whenever you need it. The bank pays you for using your money. The money the bank pays you is called interest. For example, if you put $100 into a bank account, the bank might pay you $2 in interest.

Why would a bank give you money just for putting your money in their bank? The bank earns interest, too, when it lends your money to another person. People who borrow money from the bank have to pay the bank interest for the privilege of using someone else’s money. If you borrow money from the bank, you will have to pay the bank back the amount that you borrowed, plus some extra money. For instance, if you borrow $100, you might have to pay the bank $110. It would cost you $10 to borrow that $100 from the bank. That’s how banks earn money. But without people who deposit money in the bank, the bank wouldn’t have any money to lend. That’s why banks will pay interest to the people who deposit money.

By saving your money in a bank, you can earn money while you lie on your bed and listen to music!

People work hard to earn their money, so it’s important to spend it wisely. The next time you’re thinking of spending money, ask yourself these questions. Do I really need this? How many other things like this do I already have? How much will I use it? Will I still want this in two weeks, or a month, or six months? If I buy this, what will I have to give up?

If you decide that you really do want to buy the item, be a smart shopper. Different stores can have different prices, so shopping around can save you money. Wait for the item to be on sale, or look for a coupon. But don’t just buy something because it’s on sale. If you don’t really need something, it’s not a good deal even if it is on sale.

Remember that the best way to save the most money is to not buy anything at all!

Saving and Spending

It Adds Up!By saving just a few cents a day, you can have a good amount saved by the end of the week, month, or year.If you save just 10 cents every day, at the end of the month you will have $3.00. That’s enough to spend on a special treat or a book! If you don’t spend your money at the end of the

month, and you keep saving for a year, you would have $36.50.


The use of money makes trading easier and more efficient. People can accept money for their own goods and services, and then use that money to buy goods and services from other people. Using money means that a consumer doesn’t have to find a trading partner who wants what the consumer has to trade. The corn farmer who wants shoes doesn’t have to find a potato farmer who wants corn in order to trade with a shoemaker who wants potatoes.

Money is anything that is widely accepted as final payment for goods and services. Today, money comes in paper bills and metal coins. In the past, people used many things instead of bills and coins. Some Native Americans used wampum, small polished shells strung together. Some countries used salt, tea leaves, rice, or even camels as a kind of money.

People on Yap Island in the Pacific once used huge rocks shaped like doughnuts as money. The rocks had a hole in the middle so they could be rolled from place to place with a long pole. Some Yap money stones are small, but some of them weigh more than 500 pounds and be as large as 12 feet across.

As time went by, people wanted money that was easier to use than giant stones, or camels, or rice. They wanted money that was small and easy to carry around,

or portable. They wanted money that was divisible, which means it can be divided into smaller amounts. Consumers wanted to be able to break money into smaller amounts if the price of an item didn’t require the whole unit. How would you pay for something that’s worth half of a camel? People also wanted money that is durable, which means it will not fall apart easily. They also wanted money that was recognizable. When you look at money, you should know how much it’s worth and where it’s from.

People soon realized that metal was a better material for money. Metal is durable. It does not break like shells or spoil like tea leaves. Metal coins are portable, and easier to carry around than rocks or camels. Metal coins are divisible because they can be made to be worth different amounts. Metal coins were also recognizable because they could be stamped with pictures and numbers.

The first metal coins, called cash, were made in China about 3,000 years ago. These pieces of money had holes in them so that 1,000 pieces could be put together on a string. A string of cash, which weighed over ten pounds, was carried over the shoulder.

Money

CurrencyEvery country in the world has its own money

system. Currency is a country’s system of money. Currency is different from one country to another, but all currencies have some things in common. They have symbols on them. They also have numbers on them that tell you how much it is worth. Each country’s currency has features that make it recognizable to each country.


Money in the United States is made by two different agencies. The Bureau of Engraving and Printing produces bills, and the United States Mint produces coins. The basic monetary unit in the United States is the dollar. The dollar sign $ is used to show money amounts. US$ and and USD are used to distinguish the United States dollar from other kinds of dollars. The dollar is divided in to 100 cents.

There are $1, $5, $10, $20, $50, and $100 dollar bills. There is also a $2 bill that is not used very much. For almost 70 years, all of the bills looked very much the same. They all had the same green color, and very similar designs. In 2003, all of the bills except the $1 bill were redesigned to add some different colors. The portraits on the fronts of the bills were made larger. The numbers on the back showing the amount of the bill were made larger, too.

United States coins come in one-cent (penny), five-cent (nickel), ten-cent (dime), twenty-five cent (quarter), and fifty-cent (half dollar) pieces. The United States also started making a new gold-colored $1 coin in 2000. The penny is copper colored, and the rest of the coins are silver colored. All of the cent coins have a picture of a former president on the front. The $1 coin has either a president or Sacajawea on the front. The backs of quarters have many different designs, showing landmarks and scenes from each state. The value of each coin is written on the back.

Our paper currency is very durable. A dollar bill can be folded 4000 times before it will tear. A coin can last 30 years. A $1 bill lasts about 5 years, but a $100 bill lasts 15 years. $100 bills last longer because they are not passed from one person to another as many times as $1 bills are.

United States Currency

★ © JILL S. RUSS ★ PAGE 25

Name ___________________________________________________ # ________

Learning About

Economics Before you begin reading each section, write True or False in the “Before” column. After you read, write True or False in the “After” column. Then answer the questions.

Goods and Services Before After

1. List some examples of goods that you might use at school.

______________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. List some examples of services that you might use on the weekend.

______________________________________________________________________________________________________________________________________________________________________________________________________________________________

Needs and Wants Before After

1. Earning an income means that you trade your time and effort for money.

2. Goods and services are things that people buy.

1. Needs are the most important things people spend money on.

2. People make choices about what they buy because they have a limited amount of money.


1. Why are food, water, and shelter considered needs?

______________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. Why are most of the things that we buy wants?

______________________________________________________________________________________________________________________________________________________________________________________________________________________________

Choices Before After

1. Explain why every purchase you make has an opportunity cost.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Producers and Consumers/Resources Before After

1. Choose a good or service that was not listed in the text. Explain what natural, human, and capital resources are needed to produce that good or service.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

1. People can have all of the goods and services they want.

2. Opportunity cost is when you get the chance to buy something on sale.

1. Producers and consumers are always two different people.

2. Resources are things that you use to make goods and provide services.


Trade Before After

1. Why is bartering sometimes difficult?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. Explain how imports and exports work together.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Specialization and Interdependence Before After

1. Explain how the United States and Costa Rica are interdependent.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

1. People have to trade with others because they cannot produce everything that they want themselves.

2. Scarcity means that you have too much of something and you want to get rid of it.

3. The United States produces all of the goods and services its citizens need.

1. Specialization is making many kinds of expensive and special goods to sell to consumers.

2. Florida grows a lot of bananas and citrus fruits.

3. Florida exports coffee beans to Mexico and Costa Rica.


Supply and Demand/Advertising Before After

1. Why do producers want to have just the right amount of product available to sell?

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. What will happen to the price of Christmas trees on December 26? Why?

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Saving and Spending Before After

1. When do you earn interest? When do you pay interest?

______________________________________________________________________________________________________________________________________________________________________________________________________________________________

1. The price of an item depends on how many people want to buy that item.

2. Advertising is used to make more people buy a certain product.

3. The price of an item depends on how much of that item is available.

1. You can earn more money by putting your money in a bank account.

2. When you put your money in the bank, the bank lets other people use your money.

3. Banks make money by letting people borrow money.


Money/Currency Before After

1. Why is metal a good material for money?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. How does money make trading easier?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

United States Currency Before After

1. How has the design of U.S. dollar bills changed?

______________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. What evidence does the author use to show that U.S. currency is very durable?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

1. People used to use camels, salt, and tea leaves as money.

2. The first metal coins were made in Japan about 300 years ago.

3. Money makes trading much more difficult.

1. Money in the United States is printed by the Treasury Department.

2. Dollar bills are made out of paper so that they will not last very long.

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