Money, Goods, and Services
Economics is the science of making choices. To make a choice it is
necessary to consider cost and benefits of any given choice. When you
purchase something you weigh the price against your satisfaction or use from the
product you purchase. Cost has more than just a dollar value.
Economists consider two types of cost, opportunity cost and opportunity benefit.
Opportunity cost is the value of any alternatives that you give up when you
make your choice. The opportunity cost is the value of the opportunity
lost. Many factors are involved in making the decision but any items that
were under consideration when you made your choice would be considered in the
opportunity costs of the decision.
Opportunity benefits is what is gained by making a specific choice. The
benefit that occurs because of the choice. Every economic decision has
both a opportunity cost and an opportunity benefit. When making a good
decision, opportunity benefits (what you gain) and opportunity costs (what
you lost) are compared. Good decisions minimize one and maximize the
other.
The flow of money, goods, and services from the private sector to the public
sector is part of a healthy economy. The private sector is owned by
individuals making private choices for their personal benefit.
Examples: private businesses, country club, health club, etc. The
public sector is the part of an economy that is owned by the whole society and
operated for its benefit. Examples: schools, highways, government at
all levels.
Economic activity in the private sector involves the giving of one thing in
return for something else. A voluntary exchange occurs when both parties
receive something that they desire. Since private sector decisions involve
some type of exchange they usually occur in some kind of market situation.
Public sector exchanges are usually involuntary. All individuals in a
given society pay taxes to support schools, highways. While everyone has
the opportunity to use the public sector product, the reality is that all
individuals in the society support the activities but many do not use the
specific opportunity such as schools.
Exchanges in the private sector take place in a market setting. A
market exists when there is an exchange between buyers and sellers of goods and
services. Markets establish and provide price information which determines
the willingness of the individuals to exchange the items. A market
establishes prices through competition. The success of a producer depends
on their ability to satisfy wants and needs of consumers. In providing the
item for the market the producer is taking a risk that he knows what will sell
and invests his capital (money) to produce the item for sale. A private
enterprise economy is a system in which individuals take the risk of producing
goods or services to make a profit.
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