Essay: What is Economics?
Economics is an important branch of human knowledge. It is defined by the US Department of Education as a science that “examines the allocation of scarce resources among competing wants” (Indiana Department of Financial Institutions, n.d.). The notion of scarcity of resources is central to economics as it identifies the need to compete for these resources. The objective of economics is to seek the most effective patterns of allocating these resources; a purpose for which economics uses a variety of methods and tools. Economics deals with the whole of the economic system, examining various interdependencies that exist within it and finding ways to foster growth and increase productivity.
The study of economics is essential because it allows thinkers and policy-makers to work out effective solutions for economic policies that will improve the well-being of people. For individuals, it is important because it helps them better understand the choices their organisations have to make as they compete for scarce resources. It is vital for businessmen who need to understand the complex reality they are dealing with on a daily basis.
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The notions of choice and scarcity are important in economics because they lay the foundation for understanding of economic processes. Since resources are scarce, individuals and organisations are likely to have limited access to them and compete for this access. Those who allocate these resources have to make important choices in their decision-making. In many cases, choice is made on the basis of market mechanisms.
Because of its importance for human progress and regulating economic activities, I find economics an interesting and useful subject, although it rather complex because there are many mathematical calculations involved. It is important to anyone who is determined to pursue a career related to allocation of organisational and social resources. I am especially interested in microeconomics because it directly affects consumers and businessmen, explaining why consumers and businessmen make their choices. I believe that a writing-intensive course will provide better opportunities than a regular course, giving to students opportunities for mastering the content through personal writing and writing projects.
Study of economics is associated with many complex mathematical issues that students will master in the course. Variables in economic calculations can be joined by direct or inverse relationships. A direct relationship means that a rise in one variable automatically triggers a proportionate increase in the other variable. For example, an increase in the median house price if mortgage rates remain unchanged will lead to a rise the monthly payment on the mortgage. An inverse relationship also presupposes a proportional relationship, but this time a rise of one variable will trigger a decline in the other one. A rise in the consumer pricing index will, for example, lead to a decrease in the purchasing power of consumers, given that their salaries remain unchanged.
Economic research is underpinned by a variety of theories such as production-possibility frontier (curve) and circular flow. The production possibility frontier is “a graph that depicts the trade-off between any two items produced” (Wikipedia, 2006). The opportunity cost of raising the output of one item is increased as the output of the other one declines. This graph depicts the rise in the amount of one commodity for every forgone unit of the other commodity. Dr. Roger A. McCain, Professor of Economics of Drexel University, gives the example of a nation called Economia that faces a trade-off between the production of machines and food. The production-possibility frontier demonstrates that “production of food drops off more and more steeply as more and more machines are produced” (McCain, n.d.). Decisions to produce this or that commodity are based on the marginal rate of transformation which reflects the slope of the frontier that reflects “the rate at which one good can be transformed into the other” (Wikipedia, 2006).
The theory of circular flow depicts the movement of goods, services, and money in the economy. This flow occurs between individuals, households, and businesses. People who work in the economy receive wages that they then spend on consumption goods, turning their incomes into expenditures. Individuals and households pay taxes to governments and put their funds into the financial system through things like bank deposits and other investments. J. Bradford DeLong (1998), Professor of Economics from University of California at Berkeley, states that expenditures and incomes result in equal flows, since “all expenditures on products are ultimately someone’s income, and every piece of total income is also expended in some way”.
The study of economics provides learners with a variety of models used to detect regular patterns in economic processes. These theories are sometimes controversial, sometimes conflicting with each other. However, they all serve one common goal: give people better understanding and more adequate control of society’s economic life.
DeLong, B.J. (1998). The Circular Flow of Economic Activity. Retrieved May 19, 2006, from http://www.j-bradford-delong.net/multimedia/circular.html
Indiana Department of Financial Institutions. (n.d.). Consumer Education: Definition and Concepts. Retrieved May 19, 2006, from http://www.in.gov/dfi/education/statesed.htm
McCain, R. (n.d.). Alternatives in Production: Diagram. Retrieved May 19, 2006, from Drexel University website at: http://william-king.www.drexel.edu/top/prin/txt/Effch/ch3_ppffig.html
MSN Encarta. (2006). Economics. Retrieved May 19, 2006, from http://encarta.msn.com/encyclopedia_761562677/Economics.html
Wikipedia. (2006, May 15). Production possibility frontier. Retrieved May 19, 2006, from http://en.wikipedia.org/wiki/Production_possibility_frontier