What is economics?
Boiled down to its essence, economics is a science that investigates the choices people, businesses and governments are forced to make because of a fundamental truth: resources are scarce. This might seem kind of boring and irrelevant at first, until you start to think about all of the situations in which this concept of scarcity-forcing-choice arises. Here are some examples:
- The ultimate scarcity is probably that of time. There are only 24 hours in each day - there's no getting around it! Up until this moment of this day, you have probably made dozens of choices about how to use your time. Every time you chose to do one thing, you gave up the opportunity to do something else. Why did you have to make that choice? Because time is scarce. If we expand the time period to semesters, we can discuss your choice to attend college this term. What else could you have done with that time?
- You have money to spend. We won't discuss how much, but if you're like most people it's not enough! Because you don't have enough money to buy everything you want, you again have to make choices. Do you drive a car? Have you bought gas recently? How much did you buy? What made you decide to buy 8 gallons, say, and not 9 gallons? Or 7 gallons? Questions like those are the bread-and-butter of economics. If you take econ, you will be taught to approach the question of choice step-by-step: Will the consumer buy another gallon of gas? Why or why not?
- What if a government is trying to decide whether to fight a war? Wars have two main costs. First there is the loss of human life, which is - of course - tragic. The other main cost consists of what was given up so that the nation could go to war. What else could have been done with those tax revenues, or debt, or both? Or could taxes have been lowered?
- What about trade? Trade is why businesses are in business. What is it about trade that makes it so desirable? Is there a downside to trade?
To explore this all further, take econ classes! But remember that economics is a science and it will take hard work and practice to fully appreciate what it has to offer. If you do the work and try to apply what you learn to your own daily life, you are likely to enjoy economics.
Why study economics?
Studying economics can be both useful and enjoyable. Consider the following:
- If you work hard and study efficiently in your economics courses, you will develop valuable skills. Because economics is a difficult subject (at least for most students), you will need to manage your time and priorities. Economics is quite analytical, meaning that to succeed involves developing solid problem-solving skills. You also need to think critically. Critical thinking is the skill used to evaluate questions like: Should our government promote free trade? What is positive and what is negative about free trade? Thinking critically, solving problems, and managing time and priorities are essential skills that employers look for in college graduates (Source: Michigan State University, "12 Essentials for Success").
- Economics is relevant. Here's an example: Suppose that in the future you're thinking about starting your own business. If you took economics in college, you would be more likely to make this important decision having considered all of the relevant factors. You would have developed the tools to analyze such questions as:
- If you work in the business but do not pay yourself a salary, does that mean your labor is free?
- If your business makes a profit, have you done well?
- Economics can be surprising. A lot of ball players make millions of dollars per year. Words like "excessive" and "outrageous" are often used to describe those salaries. What does economics have to say about it? Well, the owners of those teams have voluntarily agreed to pay those salaries. But why would they do that? What is it that justifies those salaries? Answering those questions involves the use of marginal analysis, which is one of the most important tools in economics. In fact, marginal analysis is used to get a lot of surprising answers, and is a tool that is broadly applicable both in business and in everyday life!
- Economics can be profitable. Consider the following investment situation: One year ago you purchased a common stock whose price fell 10 percent over the course of the year. Should you hang onto the stock until you recover your loss? One of the most profitable lessons you can learn in economics is the concept of a "sunk cost." To savvy investors (many of whom - no accident - are well trained in economics), the prior year's loss is irrelevant to the current investment decision. The relevant question is: Is there another investment out there that is better, and that I should therefore switch to?
So what's the bottom line? If you come to class with an open mind, prepared to listen carefully and work diligently, economics can be a richly rewarding subject.