WHAT IS ECONOMICS?
Imagine that you lived hundreds of years ago when money did not exist. You traded, or bartered, things that you had for items that you needed. You might barter two goats for a cow or fruits for vegetables. However, bartering had many problems. For example, suppose you were a corn merchant who thought that one ear of corn could be bartered for four tomatoes. But what if the tomato merchant thought that one ear of corn was worth only two tomatoes? How would you decide on a fair price? Deciding on fair values for trades was just one problem with bartering. Transporting goods (especially long distances) was another problem associated with bartering.

Eventually, money came along to make things easier. Money was easy to carry (even long distances), had a stated value, and could be traded for goods and services. Early forms of money included shells, cocoa beans, dog's teeth, and limestone. Over time, various cultures around the world developed coins and paper bills for trading. People took jobs and were compensated for their work with money. They used this money to acquire food, clothing, and other necessities.

In the eighteenth century, Adam Smith studied how people made decisions about money and work. He published a book called An Inquiry into the Nature and Causes of the Wealth of Nations. (The Wealth of Nations, for short.) This book was the beginning of the science called economics. In this lesson, you will learn about economics and its focus on decision making.