Why We Study Economics
Why We Study Economics
Economics is the study concerned with the proper use and allocation of resources for the achievement and maintenance of growth with stability.
An economy exists because of two basic facts- unlimited wants and limited resources. An individual or a society has to decide how to use its scarce resources to obtain the maximum possible satisfaction. It is this basic problem of scarcity that gives rise to many of the economic problems which have long been the concern of economists. We can say that Economics studies the way a society chooses to use its limited resources which have alternative uses, to produce goods and services and to distribute them among different groups of people.
When we study economics, we not only gain the skills needed to understand complex markets of an economy but also get strong analytical and problem-solving skills.
There are four main reasons to study economics:
· To learn a way of thinking,
· To understand society,
· To understand global affairs,
· To be an informed citizen.
To Learn a Way of Thinking:
The most important reason for studying economics is to learn a way of thinking. Economics has three fundamental concepts that can change the way you look at everyday choices: opportunity cost, marginalism, and the working of efficient markets.
Opportunity Cost: human wants are unlimited and the resources available to satisfy these wants are limited. People have to decide how to divide their incomes among all the goods and services available in the marketplace. The scarcity of resources gives rise to the fundamental economic problem of choice. Thus, choice involves sacrifice. A key concept that occurs frequently in analyzing the decision-making process is the notion of opportunity cost. The second best alternative that we forgo, or give up, when we make a choice or a decision is called the opportunity cost of that decision. Opportunity costs arise because resources are scarce.
Marginalism: A second concept that is used in analyzing choices is marginalism. Marginalism emphasizes the significance of marginal changes in economic decision-making. It means that people make decisions over specific units of economic goods rather than in an all.
It explains the fact that the individual makes decisions based on the marginal benefit or cost of a specific action, rather than the total benefit or cost.
Marginalism helps to explain how individuals decide what goods and services to purchase based on the marginal benefit and marginal cost of each additional unit consumed.
For example, consumers will continue to buy more units of a good or service, till, the marginal utility is more than the marginal cost.In the field of production, the producer will continue to produce additional units of a good or service as long as the marginal cost is less than the marginal revenue.
The intersection of the marginal utility and marginal cost schedules for consumers and the marginal cost and marginal revenue schedules for producers determines the market equilibrium.
Marginalism is the process of analyzing the additional or incremental costs or benefits arising from a choice or decision. Efficient Markets—No Free Lunch:
In an efficient market, the market price is an unbiased estimate of the true value of the investment and all relevant information is included immediately. [All the information is passed on perfectly, and instantly without any cost so that everyone receives the entire information for free.]
The common way of expressing the concept of the efficient market is “there’s no such thing as a free lunch.”Thousands of individuals each day are looking for hot tips in the stock market. If a particular tip about a stock is valid, there will be an immediate rush to buy the stock, which will quickly drive up its price.
Thus, an efficient market is any market where asset price movements can’t be consistently estimated, i.e., it is impossible for an investor to consistently make money in an efficient market by trading financial assets or we can say that an efficient market is the market in which profit opportunities are eliminated almost instantaneously.
Thus, the study of economics teaches us a new way of thinking about current events and helps us to make personal and business decisions.To Understand Society: The study of economics helps us to understand society better. Economics enables people to understand the actions and decisions of individuals, businesses, and governments. It provides a tool to analyze government policies that affect the families, employment, and lives of citizens.
Economics as a social science is related to the proper use and allocation of resources for achieving and maintaining growth with stability.
Resources are limited by nature so societies must establish priorities and decide how to allocate resources in the best way that meets as many wants as possible.
If we want to bring revolutionary changes in society for the betterment of the people, we should study economics.
To Understand Global Affairs:
A third reason for studying economics is to understand global affairs
In a relatively open, market-oriented world, it is impossible to understand political affairs without a knowledge of economics.
Every major problem facing the world today, from global warming to world poverty, has an economic dimension. After studying economics, we can explore the causes and consequences of globalization, international development, and international trade, and its effect on the country.
An understanding of economics is essential to an understanding of global affairs.
To Be an Informed Citizen:
A knowledge of economics is essential to being an informed citizen.
Understanding economic terms such as recession or inflation, business cycles and how the recession or inflation effects the economy and what the government can and cannot do in these circumstances is an essential part of being an informed citizen.
Economics is also essential in understanding the government decisions at the local and federal levels. Apart from this, we can able to vote intelligently on budgets, regulations, and laws in general. Thus, to be an informed citizen needs a basic understanding of economics.
Dr. Swati Gupta
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