An Introduction to Economics
Ever wondered how the world works, how financial markets or industry outlooks affect the economy, our lives, or even how people and groups of people use their resources?
The answers all lie in the field of economics. In this article I'm going to try and explain some of the fundamental concepts of this extremely fascinating subject which encompasses almost every aspect of life, from daily transactions to landmark governmental policy decisions.
So, what is Economics?
Although full of complex terms and confusing details which are often difficult to explain, economics actually affects every aspect of our daily lives.
Economics is about the allocation of resources available to fulfil people's needs and wants for goods and services.
In a perfect world, everyone has unlimited resources and is able to satisfy all their needs and wants. However, in reality, resources are scarce or limited and all of our needs cannot be satisfied. We therefore have to make decisions about allocating our limited resources in the best possible manner. Economics studies how these decisions are made by both individuals, companies and governments.
Economics can be divided into two general categories:
In short, while microeconomics looks at the individual, macroeconomics looks at the big picture.
How do we assess what people want or even how much they are willing to pay for it? How is one industry doing compared to another? What is the economic future of the country or world?
Whether it be managing personal finances and spending, or making an informed decision at the voting booth, an economic understanding is key. For example, if one does not understand the concepts of diminishing returns and externalities, then managing personal finances and optimizing spending habits isl be difficult. Similarly, if one does not understand taxes, inflation or unemployment, then when faced with two candidates championing different economic policies, it will be impossible to know which policy will be most effective and thus make an informed decision on whom to vote for.
Taking a real-life example: if someone was looking for a place to live, and found a home to either buy or rent, how would they decide which option to select? In order to evaluate the benefits and drawbacks of each option, they would need to consider their current financial situation, the length of time they intended to stay in the home and weigh it against the cost associated with the transaction.
So, who should learn economics?
Everyone, including children from elementary through senior school. While younger children can be introduced to it in an interactive manner using aspects of their daily lives; high school and university students can get technical and learn to build on and apply their their prior knowledge to realistic and more complex situations.
Acquiring economic knowledge also teaches important financial skills, such as budgeting, managing investments and filing taxes.
In general, understanding economics can help one become financially literate and aid in creating a secure future.