We can’t escape economics. Everywhere we go, we are in the midst of an economy. Businesses, corporations, governments, and even households are just a small part of economics. Economics is a part of life, and by understanding a small part of this complicated ‘science’, we set ourselves up for a more prosperous future. A grasp of economics gives people the tools to understand their economic world and how to interpret events that will directly or indirectly affect them. We all contribute to the economy, whether we are producers, consumers, workers, investors—the list is endless. If we understand the principles of economics, we can better navigate our rapidly evolving economies and and manipulate the system to our own benefits.
Economic literacy improves the competence of individuals for making personal, social, and economic decisions about the vast expanse of issues that will be presented over a lifetime. Economics is not a difficult subject to understand. Like many other subjects, it does delve into deeper and more complicated meaning that does require a better comprehension, but like everything else we learn for life, it takes time and a bit of work. But in this case, the benefits far outweighs the cost. First, I’m going to define some basic terms. What really is economics? It’s a word that we hear often enough, but probably don’t actually know what it means.
This is the definition I will be using; economics is the study of how individuals and societies choose to allocate scarce resources, why they choose to allocate them that way, and the consequences of those decisions. Scarcity is the basic problem of economics. Humans have infinite wants and desires; but there are limited resources to produce goods to satisfy those wants. Scarcity is the state of being scarce or short in supply; to have a limited amount of a resource that produces goods. Goods are any physical thing which can be bought, traded, or sold to individual consumers or organizations.
We are all consumers—we buy and use products that producers market. Now that we have got some basic terms out of the way, let’s dissect economics a little more. Economics is divided into two parts: microeconomics and macroeconomics. Microeconomics is the study of economics in terms of individual areas of activity, and it is the study of the interactions of buyers and sellers in the markets for particular goods and services. Macroeconomics is the study of economics in terms of whole systems especially with reference to general levels of output and income and to the interrelations among sectors of the economy.
So basically microeconomics is the study of economics in smaller, more personal transactions, and macroeconomics is the overall view of an economy. There are some common misconceptions about what economics is. Economics is not the study of stock markets, money, or how to run a business. Economics is a social science that seeks to better understand and predict human interactions and their effect on the economy. Understanding economics will improve your ability to comprehend and evaluate critical issues and decisions. How do we see economics throughout our history? First, the word economics is derived from the Greek word ‘Oikonomia’, which means ‘household management’, or ‘management of household affairs’. Funny how such a simple term has now expanded to define such a complicated network of functions. Economic history is the study of economic phenomena. History is the study of past events, and economics is the study of patterns and behaviour. So economic history is the study of past economic patterns. Economics has existed for quite a while now.
A long time ago it was considered a branch of philosophy, until it branched off to become its own thing in the 1700s. Adam Smith is widely regarded as the founder of economics, but he was also greatly inspired by French writers who shared his beliefs and ideas. Who is Adam Smith? Adam Smith was an 18th century Scottish philosopher and economist who is now known as the ‘father of modern economics’. He is most famous for his 1776 piece, “The Wealth of Nations”, which contains ideas and concepts that had never been published in a format that was designed to explain them to the average reader. Smith didn’t create these ideas, but he is responsible for popularizing them.
In “The Wealth of Nations”, Smith discussed concepts such as the evolution of society. He wrote about how the hunter stage, where there were no property rights, laws, or set residences, to the modern society with regulations and a functioning system. Some other areas of economics that Smith influenced was the idea of GDP international trade, and the division of labour. Before Smith’s book came out, countries were wary about trading, unsure of whether or not it would benefit them. But Smith argued in his book that a free exchange should be available so that both countries can mutually benefit from a trade. Smith’s ideas became the foundation of classical economics, and though he is gone, the seeds that he planted have grown to be a massive and complicated social science.
Why is economics a social science, and not a natural science? What even is a social science? A social science is the scientific study of human society and is concerned with the relationships among individuals within a society. Economics is the scientific study of the ownership, use, and exchange of scarce resources. It uses scientific methods to help build theories and explanations of individuals, groups, and organizations. Unlike, say physics, economics does not have any immutable laws. Economic laws are influenced by human behaviour, and since human behaviour is constantly changing, economics cannot be a natural science. Economics is hard to understand because it takes many different aspects of the world (i.e. math, environmental science, psychology, political science) and incorporates it into many, many different ideas that attempt to explain how the economy functions and how society works.
Understanding economics is something that not many people these days can say they do, because it is not as simple as it might seem. So why is economic knowledge important in this day and age? What are the benefits of having a basic understanding of how your economy works? Well, first of all, economics teaches you how to make well informed decisions about buying, selling, and living in general. If you have an idea about how the economy moves, then you’ll be more ready to move with it instead of being left behind. You’ll be able to understand the economic issues that affect you as a consumer, producer, worker, investor, or citizen, and you will be able to interpret events that will either indirectly or directly affect you. Knowing economics will also help you understand how societies, governments, households, and business allocate their scarce resources.
Scarce resources are the workers, equipment, raw materials, and organizers used to produce scarce goods. Scarcity means that the human want or need for an good or service exceeds what is available. All resources are limited, but human wants are unlimited. For example, a certain job might become a scarce resource because there are not enough workers in that particular field. Or maybe strawberries have gone extinct, and the demand overwhelms the supply. This could affect many things in your life, from deciding what job you should go for to whether or not it’s worth it to buy those super expensive strawberries. Finally, our lives are constantly being influenced and controlled by economics: from investments to taxes to groceries, and we’re more likely to succeed and ‘beat the system’ if we understand what economics is all about. Economics is not an easy subject to excel at, but basic understanding of this social science is readily available, you just have to have your mind open and ready to be confused a bit.
We try to understand and study the past in order to predict and create a better future. Learning from past mistakes helps us to understand how to possibly avoid future problems, just like we do from history. Economics has its own amazing history, and although many mistakes were made, all of that has made the economy what it is today. By understanding how the economy, as a large, operates, we are more aware of how the system we live in works and how we, a little part of it, can reap as many benefits as possible from it. We are all in the school of life, a never ending enrolment that requires us to seek out knowledge to further stretch the capabilities of our mind, and to try our best to improve the world around us for ourselves and future generations. Gathering even the smallest bit of economic knowledge is one way to do that.