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.
|This page was updated on: 04/10/02|