What is Economics?

Resources are scarce. At the level of the individual, time and earnings are insufficient to satisfy all that an individual wants and desires to consume. At the level of a nation, production inputs necessary to satisfy the goods and services citizens want are scarce. Accordingly, nations as well as individuals have to make difficult decisions regarding the use of scarce resources in the production of goods and services that are demanded.

Every choice individuals make involve an opportunity cost. Every choice made by communities and by nations involves opportunity costs.

Choices are necessitated because we as individuals and collectively as communities and nations, always want and desire more relative to the availability of resources to satisfy those wants.

The Production Possibilities Model is a powerful tool that illustrates scarcity and the need to make choices and opportunity cost.

Choosing more of one alternative involves greater opportunity cost principally because increasingly more resources must be given up that could have been used to satisfy other demands. For example, going to graduate school becomes more expensive than attending college as an undergraduate because earnings as graduate with a bachelor’s degree are foregone. Another example would be a nation that moves resources in the direction of fighting cancer and away from funding education finds that foregone education becomes increasingly costly as fewer individuals possess the skills to be productive workers.

Economic growth moves the production possibilities curve rightward and while not eliminating scarcity, does permit the consumption of more; economic decline moves the production possibilities curve leftward and implies less consumption.

Economics is a study of rational choice, example, the selection of options that maximize the value created by scarce resources at the lowest possible cost. Microeconomics concerns decision-making by the micro units of the economy: individuals as consumers, workers, and savers; businesses as suppliers/producers, investors, and purchasers of the services of capital, raw materials, and labor skills. Macroeconomics concerns decision-making by the collective of the domestic micro units, or by foreigners, and how those choices may result in inefficiencies which move the macro-economy to under-produce relative to potential, or may result in inflationary pressures. Government exercises major influences in the decisions made at both micro and macro levels, and the study of economics accordingly includes a study of those influences.

By Anson :)