But what about teaching economics to someone who is brand new to the topic and has no prior knowledge? How do we define economics for everyone, in the most straight forward terms? Simply put, economics is defined as a social science that studies how people make choices with the scarce resources available to them. There are two critical elements within this definition that one must comprehend if one hopes to have a well-rounded understanding of what economics really is. The first critical element of that definition is the “choices” part. What this term insinuates is that people will often have many options for any given decision, but that by choosing any one option, people must forgo the ability to choose any other alternative. This giving-up of the potential gain or loss from other alternatives is referred to as the opportunity cost. The second critical element of that definition is the “scarce resources” part. What this term insinuates is that since we have limited amounts of money, raw materials, land, and other resources, we must be very frugal with how we choose to delegate those resources and to what purposes we dedicate them.

What does that mean the study of economics is defined as? In layman’s terms, the study of economics is the study of choices, and more importantly the costs associated with those choices. The opportunity costs we encounter as a result of scarce resources lead us to three essential questions that all economies must answer. First, what goods or services should we be producing? This is an essential question because it dives into the concept of competitive advantage. If the economy of a given country is more efficient at producing guns than it is at producing butter, then the economy of that country would be likely to dedicate the majority of their resources to the production of guns, since it would be more profitable for that economy. Second, in what way or by what methods should goods and services of an economy be produced? This is an essential question because it dives into the concepts of costs and revenues. Microeconomic concepts like marginal revenue and marginal cost become important when making important decisions like this. Thirdly, who are the actual people the goods and services are being produced for? This is an essential question because it dives into the concept of opportunity cost. If one person consumes a good or service, that means that somewhere else there is a person who was not able to consume that good or service.

Finally, one other critical element of the study of economics that I have not yet mentioned would be the laws of supply and demand. These laws govern the price, quantity, and quantity demanded of every good in every market, with the exception of government regulated goods and services like gasoline, for example. When the relationship of supply to demand is illustrated on a graph, the intersection of the lines is referred to as the point of equilibrium and is only achieved when there is no shortage and or surplus of goods and services. The laws of demand and supply justify the relationship between the desire for a product and the supply of that product.

In conclusion, economics is the study of choices made with scarce resources. There are a handful of critical elements or concepts that dive deeper into the fundamentals of economics, and they are often related or interwoven into one another. If one wishes to have full and complete comprehension of economics really is, one must first have a firm understanding of these fundamental concepts before one can hope to pass an Econ exam!