​GDP is important because it gives information about the size of the economy and how an economy is performing. The growth rate of real GDP is often used as an indicator of the general health of the economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well.

​The 5 main causes of inflation are increase in wages, increase in the price of raw materials, increase in taxes, decline in productivity, increase in money supply.
People get a raise at work but then the cost of living goes up too. When the cost of living increase faster than wages then you experience inflation.

​A gallon of milk in 1993 costed $2.09. Today it costs $4. Gas was $1.11 in 1993, today it is $3.52. People's wages roughly double since then but the cost of living has more than tripled.

​​Examples of fixed costs:
Rent


Employee Wages

Cost of raw materials needed to make the product

Some examples of variable costs:

Packing or shipping materials
Shipping costs
Needing more raw materials to keep up with demand
Commissions
Higher utility bills
Having to hire more employees
Having to buy equipment or a space capable of higher output

A rise in fixed or variable costs can cause a production cost to go up?

You can reach economic efficiency by keeping an eye on your fixed and variable costs. The goal is to not waste any resources and to make enough products but not too much to maximize your profits.

​Scarcity forces us to choose. Because of limited resources such as time, money and/or raw materials we can't have or do everything.

​The government may give a subsidy to encourage you to buy a product or they may put an excise tax on a product to try and get you to not buy it.