Why study economics?
What do you think is more important to focus on when considering inequality: income inequality or wealth inequality?
To reduce income inequality, should the marginal tax rates on the top 1% be increased?
What is economics, and why is it important? By the end of this section, you will be able to:
Discuss the importance of studying economics.
Explain the relationship between production and division of labor.
Valuate the significance of scarcity economics is the study of how humans make decisions in the face of scarcity.
Explain the importance of economic theories and models.
Describe goods and services markets and labor markets.
These can be individual decisions, family decisions, business decisions or societal decisions. If you look around carefully, you will see that scarcity is a fact of life. Scarcity means that human wants for goods, services and resources exceed what is available. Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply. Of course, the ultimate scarce resource is time- everyone, rich or poor, has just 24 hours in the day to try to acquire the goods they want. At any point in time, there is only a finite amount of resources available. Think about it this way: In 2015 the labor force in the united states contained over 158.6 million workers, according to the u.s. Bureau of labor statistics. Similarly, the total area of the united states is 3,794,101 square miles. These are large numbers for such crucial resources, however, they are limited. Because these resources are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.
Why study economics?
Now that we have gotten an overview on what economics studies, let’s quickly discuss why you are right to study it. Economics is not primarily a collection of facts to be memorized, though there are plenty of important concepts to be learned. Instead, economics is better thought of as a collection of questions to be answered or puzzles to be worked out. Most important, economics provides the tools to work out those puzzles. If you have yet to be been bitten by the economics “bug,” There are other reasons why you should study economics. virtually every major problem facing the world today, from global warming, to world poverty, to the conflicts in syria, afghanistan, and somalia, has an economic dimension. If you are going to be part of solving those problems, you need to be able to understand them. Economics is crucial.
By the end of this section, you will be able to:
Contrast monetary policy and fiscal policy economics is concerned with the well-being of all people, including those with jobs and those without jobs, as well as those with high incomes and those with low incomes. Economics acknowledges that production of useful goods and services can create problems of environmental pollution. It explores the question of how investing in education helps to develop workers’ skills. It probes questions like how to tell when big businesses or big labor unions are operating in a way that benefits society as a whole and when they are operating in a way that benefits their owners or members at the expense of others. It looks at how government spending, taxes, and regulations affect decisions about production and consumption. It should be clear by now that economics covers a lot of ground. That ground can be divided into two parts: Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses; macroeconomics looks at the economy as a whole. It focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports.
Microeconomics and macroeconomics are not separate subjects, but rather complementary perspectives on the overall subject of the economy. To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem like a lake. One person who sets out to study the lake might focus on specific topics:
Certain kinds of algae or plant life; the characteristics of particular fish or snails; or the trees surrounding the lake. Another person might take an overall view and instead consider the entire ecosystem of the lake from top to bottom; what eats what, how the system stays in a rough balance, and what environmental stresses affect this balance. Both approaches are useful, and both examine the same lake, but the viewpoints are different. In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different viewpoint. Whether you are looking at lakes or economics, the micro and the macro insights should blend with each other. In studying a lake, the micro insights about particular plants and animals help to understand the overall food chain, while the macro insights about the overall food chain help to explain the environment in which individual plants and animals live. In economics, the micro decisions of individual businesses are influenced by whether the macroeconomy is healthy; for example, firms will be more likely to hire workers if the overall economy is growing. In turn, the performance of the macroeconomy ultimately depends on the microeconomic decisions made by individual households and businesses.
Microeconomics what determines how households and individuals spend their budgets?
What combination of goods and services will best fit their needs and wants, given the budget they have to spend? How do people decide whether to work, and if so, whether to work full time or part time?
How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means? Welcome to economics! This openstax book is available.
What determines the products, and how many of each, a firm will produce and sell? What determines what prices a firm will charge? 16:
What determines how a firm will produce its products?
What determines how many workers it will hire? How will a firm finance its business?
When will a firm decide to expand, downsize, or even close? In the microeconomic part of this book, we will learn about the theory of consumer behavior and the theory of the firm.
Macroeconomics what determines the level of economic activity in a society? In other words, what determines how many goods and services a nation actually produces?
What determines how many jobs are available in an economy?
What determines a nation’s standard of living? What causes the economy to speed up or slow down?
What causes firms to hire more workers or to lay workers off? Finally, what causes the economy to grow over the long term? An economy's macroeconomic health can be defined by a number of goals:
Growth in the standard of living, low unemployment, and low inflation, to name the most important. How can macroeconomic policy be used to pursue these goals?
Monetary policy, which involves policies that affect bank lending, interest rates, and financial capital markets, is conducted by a nation’s central bank. For the united states, this is the federal reserve. Fiscal policy, which involves government spending and taxes, is determined by a nation’s legislative body. For the united states, this is the congress and the executive branch, which originates the federal budget. These are the main tools the government has to work with. Americans tend to expect that government can fix whatever economic problems we encounter, but to.
What extent is that expectation realistic? These are just some of the issues that will be explored in the macroeconomic chapters of this book.