opportunity costs of our decisions, and make trade-offs. To use scarce resources efficiently, societies must decide what will be produced, how products will be produced, and how products will be allocated. Keep Moving for a Healthy Economy LAP-EC-006-CS ©2016, MBA Research and Curriculum Center® Are You Satisfied? 4 If more resources are devoted to capital goods than consumer goods, societies can make more and better consumer goods available in the future. Societies, therefore, weigh current consumption against fu- ture consumption.
Very few people in the world today are able to grow or make everything that they want. Instead, most individuals rely on others to provide them with at least some of the goods and services that they desire. As a result, goods, services, and resources must flow from one person to another. Four economic activities —consumption, production, exchange, and distribution—make this movement possible. 1. Consumption. The ultimate goal of all economic activity is consumption, which is the process or activity of using goods and services. Anyone who uses goods and services is a consumer . People consume goods and services to satisfy their wants and desires. An individual might consume food, water, and gasoline during a typical day. A business might use electricity, raw materials, and machinery in production. What does a government consume? Paper, automobiles, military equipment, and more. 2. Production. For consumption to occur, goods and services must be produced. Individuals who make or provide goods and services are called producers . These producers transform natural, human, and capital resources into more valuable goods and services for consumers. Producers include hairstylists, clothing manufacturers, and farmers. How many other producers can you think of? The relationship between consumption and production must be balanced. This means that enough goods and services must be produced to satisfy consumers’ wants but not so many that producers lose money. 3. Exchange. Would you work at your job without being paid? Probably not. After all, you’re contributing a human resource (yourself) so that your employer (a producer) can produce a good or service for consumption. Likewise, most resource owners —people and organiza- tions who provide human resources, natural resources, or capital goods for use in produc- tion—require some form of payment for the use of their resources. Usually, this payment is in the form of money. This money payment may be called different things, based on the type of resources being used. For instance, payments for human resources are called wages, salaries, or profits. Payments for capital goods, on the other hand, might be interest or rent. Since producers must have resources for production, they make these money payments. After acquiring enough resources from resource owners, producers are able to produce goods and services. To obtain these goods and services, consumers make money payments to the producers. This money payment is the price of the good or service.
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