3 Essential Keys to Understand Economics

For understanding business, understanding economics is essential. Economics is the study of how a society (people) chooses to use scarce resources to produce goods and services and to distribute them for consumption. This definition raises certain issues that are the keys to understanding economics:

  1. Resources
  2. Goods and services and
  3. Allocation of both resources and products.
keys to understand economics
Keys to understanding economics

Keys to understanding economics

1. Resources: A nation’s resources consist of three broad categories like-

  • Natural resources are provided by nature in limited amounts; they include oil, natural gas, minerals, timber, and water.
  • Capital resources are produced goods for the purpose of making other types of goods and services. Some capital resources are called current assets, have a short life, and are used up in the production process. For example-fuel, raw materials, paper, and money. Some assets are also considered as fixed capital like factory buildings, machinery, personal computers, etc.
  • Human resources are the human talents, skills, and competence, available in the nation.

2. Goods and Services: A nation’s resources are used to produce goods and services that will meet people’s needs and wants. Needs lead to wants. For example, we use food and for that matter we want rice.

3. Allocation: The process of choosing how resources will be used to meet a society’s needs and wants; includes the distribution of products to consumers.

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