Introduction to Economics: Importance of Studying Economics

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Importance of Studying Economics


Economics Affects Your Daily Life

Economics is a part of your everyday life because economics affects you directly or indirectly in all fields of your life (family, school, work, etc.) as the changes in prices of goods, services, changes in taxes, fees, etc.. Economics also provides you with an effective and logical way of solving economic problems and also in making economic decisions such as allocation of budget, decisions on what to buy, etc.

Economics Helps You to Render More Informed Decisions

Learning economics will equip us with information about careers (the flow of market demand), enables us to spend our allowance/income wisely, etc. Knowing Economics also gives us  information about how the market and the economy in their entity behave thus bringing us to the best decisions possible in our lives.

Makes Us More Effective Citizens

However basically nobody is happy for paying so much of taxes to the government on the other hand these taxes usually directly or indirectly affect also the quality of our lives (infrastructure, etc). Meaning this makes us more effective citizens, so economics enables us to be aware (familiar) of our responsibilities as a good citizen. These responsibilities include:

   - paying our taxes;
   - fighting/observing/exercising our rights as workers; and
   - promoting local businesses and buying local products.

Importance of Studying Economics (video):

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Introduction to Economics: Scope and Nature & Positive and Normative Economics

Previous lesson Basic Concepts and Definitions...

Scope and Nature

One of the basic Economic problem is the problem of scarcity. We are talking about  scarcity when there is not enough resources to satisfy all the demands of the people.

All economic goods are scarce (some more, some less). For this reason, in order to satisfy the needs of the people, all economic goods require an efficient way of allocation.

But there are also goods that do not require allocative mechanism. We call them free goods. Free goods are all goods which we do not need to pay for. Example are goods that we get from nature and are not produced by human. 

Examples:

WATER is a free good as to the rivers, lakes, rain, etc., but economic good as to the water from bottle, from water supply system, etc..

AIR is a free good as to the air that you breath, but the oxygen used in the hospitals is an economic good.

Given a limited ability to obtain resources, both consumers and producers must choose between alternative products. Scarcity leads to choice and in theory it is assumed that economic units make rational decisions in a free market.

Positive and Normative Economics

Positive Economics - descriptions and explanations on the base of facts, causes, effects, objectives, calculations, tests, etc.

Example: Does an increase in taxes help the economic growth?

Normative Economics - it contains a value judgment on what the economy ought to be like or what goals of public policy ought to be; is subjective and value based.

Example: Do we really need to invest into the armed forces rather than to education?

Next lesson Importance of Studying Economics...

Introduction to Economics: Basic Concepts and Definitions

Basic Concepts and Definitions

“Economics” comes from the Greek word oikonomia which means “household”. If you reflect on the word “economics” to your real life you can say: “My household is my economy. I have to run and manage family economy this way so that it will survive for the entire year (every year). The meaning of this is that I have to do budgeting, paying bills, etc.”

It is also a study of how societies use scarce resources to produce valuable commodities and distribute them among different people with various needs.

But first we should know what are the needs of the people? Masllow divided the needs of the people into 5 levels. Let’s take a look on Abraham Maslow’s hierarchy of needs:

As you can see in Maslow hierarchy of human needs people have different needs which may come into different levels. Right after you satisfy the first level of needs, you go up to another level because your needs and wants tend to increase. Somehow we can say that people have never enough. Even though they satisfy all the necessary needs which are only needed for life there will always be more and more wants and needs which increases to infinity.

Short and simple video about Maslow`s hierarchy of needs:

But you have to consider also that there are always unlimited needs/wants but only limited resources.

For this reason Economics is also a study of how individuals within a society generally make choices that involve the use of scarce resources from among alternatives wants that need to be satisfied. These resources and the goods produced from them are not freely available for they require using up other resources to obtain them.

In order to have a sustainable development, the present resources must be managed. Not just for a short period of time but especially for a long-term planning to make efficient use of these resources which means the highest gains for the least cost.

Next lesson Scope and Nature & Positive and Normative Economics…