Understanding Economics

There are many questions that arise when the term economics is brought up. Why are some countries while others languish in poverty? What causes recessions or inflations? Economics is the subject with all the answers to these questions.

Economics is a discipline that can help us answer these questions. Economics can actually be defined a few different ways: it’s the study of scarcity, the study of how people use resources, or the study of decision-making. Economics often involves topics like wealth, finance, recessions, and banking, leading to the misconception that economics is all about money and the stock market. Actually, it’s a much broader discipline that helps us understand historical trends, interpret today’s headlines, and make predictions for coming decades.

Sourced from: https://www.aeaweb.org/resources/students/what-is-economics

Is it important to study economics? Well the answer is yes. It is through economics that governments get realistic solutions to the problems that a country faces. In short economics allows us to see the glass half full.

Why study economics

Economists are well known for advising the president and congress on economic issues, formulating policies at the Federal Reserve Bank, and analyzing economic conditions for investment banks, brokerage houses, real estate companies, and other private sector businesses. They also contribute to the development of many other public policies including health care, welfare, and school reform and efforts to reduce inequality, pollution and crime.

The study of economics can also provide valuable knowledge for making decisions in everyday life. It offers a tool with which to approach questions about the desirability of a particular financial investment opportunity, whether or not to attend college or graduate school, the benefits and costs of alternative careers, and the likely impacts of public policies including universal health care and a higher minimum wage.

Sourced from: http://econ.uic.edu/economics/why-study-economics

Even the common person should know a little bit of something that includes economics. People are faced with decisions every day and these decisions border economics. When we make the right choices then we have two options. We either work hard or smart.

We could spend 8 hours working in a cafe at the Minimum Wage of £3.57.

Or we could spend 8 hours studying for our A – Levels.

Alternatively, we could choose to spend 8 hours of leisure (sleeping in, facebook e.t.c.)

Each choice has an opportunity cost. The opportunity cost of earning 8*£3.57 £28.56 is that we don’t have time to study. This could lead to a lower Exam results, which could lead to lower future earning potential. Choosing to maximise our income in the short term (earning £30 a day) may reduce our lifetime earnings and could be a poor decision -unless working in a cafe doesn’t affect our future earnings. We may feel job experience more useful than an essay on allocative efficiency.

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The problem is that when making decisions about whether to study, work or pursue leisure, we may forget or ignore long term effects. Deciding to spend all our free time earning £3.57 is something we may regret later in life. Economists suggest education is a merit good – meaning people may underestimate the benefits of studying. Underconsumption of education is an example of market failure.

Considering opportunity cost can help us make better decisions. If we act on instinct, we may choose the most pleasurable or easiest course of action, but the best decision in the short term may not be best in long term.

Sourced from: http://www.economicshelp.org/blog/1974/economics/importance-of-economics-in-our-daily-lives/