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Why is Economics Important? Why Study Economics?

Economics

Few studies have had more social and cultural impact in history than economics but why does it play such a pivotal part in the advancement of our society? Why does this topic spark so much debate between intellectuals? And the most important question, why is economics important?

Why is Economics Important?

People tend to underestimate the value of a subject simply because it isn’t a natural science. Economics and other behavioural sciences may not be responsible for inventing new things and provide proven rigid laws for how things operate. 

However, that doesn’t discard their practicality. Economics is vital for understanding why specific decisions are taken and preparing measures for possible scenarios if certain events were to take place. It does not need constant terms and can adapt to variable factors as opposed to natural sciences. 

The future is uncertain so natural sciences do not try to theorise about it but economics tries to make an accurate prediction in human behaviour so that we at least have an idea of what’s to come. It’s not just about forecasting however  economics also deals with present issues which other fields of studies simply can not cover. We will cover some of those issues in detail.

Forecasting

As mentioned before; economics makes predictions so that we aren’t dumbfounded when circumstances change. As economists study human behaviour, they are able to make a reasonable prediction of what actions individuals will take in a given situation. For this reason, they can predict a future financial crisis,or even wars in some cases, so governments can prepare for it by creating more jobs to fight unemployment or provide loans to small businesses to ensure their survival. For example, they were able to warn people about a stock market crash due to the coronavirus in early January of 2020 when the crash did not begin till February 20th. This saved several investors from financial turmoil. 

Economics also tracks and predicts the rise of prices or inflation. This allows people to make decisions to prepare for an increase in living costs such as finding better jobs or asking for pay raises. Another thing economists predict is the use of scarce resources.  We will discuss this concept in detail now. 

Scarcity

We’ve already heard that economics also deals with present day issues but you must be wondering what are these issues? A primary concern of economists is scarcity. Professors Paul A. Samuelson and William D. Nordhaus define economics in their book, “Economics” as follows:

“Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.”

The key word here is scarce resources. This means that resources are limited in number and we will run out of them. Economists discuss how we can best utilise these commodities and fairly distribute them to as many people as possible. Economists labour to find ways to utilize these resources the best they can so that we don’t misuse the finite raw materials we have. 

They research the most efficient use of these assets, analyse and scrutinize the current use of these assets and keep an eye on the level of resources we have left. These are vital jobs that ensure that we are capable of meeting our basic needs such as food and water and modern necessities such as electricity and infrastructure.

A quintessential example of how economists deal with scarcity is the constant debate on the sources of fuel such as oil, gas and coal. Our telecommunication and transport are entirely dependent on electricity which needs the aforementioned fuel. 

Without economists extensively analysing the situation and suggesting what decisions we need to make, we wouldn’t be able to preserve these sources as long as we have. To put it into perspective; if these resources ran out, you wouldn’t have any internet,lights,heaters or fans in your home as there wouldn’t be any electricity. 

You wouldn’t be able to make calls as cell towers wouldn’t operate and you couldn’t drive your car as you don’t have oil or gas. That would literally be a dark,lonely and cold (or hot depending on where you live) world.

Efficiency

Efficiency is often confused with effectiveness. They are different. Efficiency is absolute; it can be measured and calculated, whereas effectiveness is rather subjective and can be debated upon. A classic definition of efficiency is getting the maximum output from the input you put in. Although economists also want effectiveness, efficiency is more achievable due to its universal acceptance. Economics focuses greatly on efficiency as one of its core concepts but how has economics contributed to the cause?

Division of Labour

Adam Smith,widely revered as “the father of economics”, was the one to introduce the concept of division of labour. This is the idea that workers will only perform the part of the production process of a good that they are good at. For example, in garment factories; a set of workers sew the clothes while another iron them and another will fold them. 

Division of Labour
Division of Labour

This increases efficiency as people who are bad at sewing won’t be wasting energy and time to produce subpar products but instead can focus on what they are good at. This gave birth to the concept of specialisation which not only impacted workers but also students who don’t need to learn unnecessary information. 

Research and Development

Economics has always emphasised the need to analyse the market you are part of. Research is a pivotal part of understanding what products can be sold and studying human behaviour makes the process much easier. Development requires natural sciences for invent products however they too will need to be supervised by someone who has basic economic knowledge in order to motivate them. This research and development will increase the efficiency of labour as they are more knowledgeable in their respective fields and will feel more motivated if the product they sell is of higher quality.

Opportunity Cost

A fundamental concept of economics is opportunity cost. This is the suggestion that every decision has a “cost” in that you could have made an alternative choice. For example: you could either buy 500 machines with $200,000 or employ 1000 new employees. If you buy 500 machines, the 1000 workers are your opportunity cost. 

This concept boosts efficiency as each decision is given more thought and we have an alternative to just measuring things financially. Firms can more easily spot the loss in efficiency. In the given example; the buying of machines had a lower opportunity cost as they are far more efficient than human labour. 

There are several more economic concepts that have contributed to efficiency and one of them is globalisation. But we shall analyse globalisation more closely as efficiency is only one of its benefits.

Globalisation

Globalisation is the process by which the international market is getting integrated. Economics supports trade across borders and it has had several benefits:

Globalization

Efficiency

As mentioned before, globalisation increases efficiency but how so? 

  • Migration: People can travel between nations so there will be a larger crop of highly efficient foreign workers.
  • Competition: Fear is a good motivator. The international competition will increase people’s drive to work so they won’t be outsold
  • Introduction of foreign practices: The Japanese concept of “Kaizen” is now an internationally applied method of production which has proven to be far more efficient.
  • Technology: Developed countries can sell poorer nations better machines and equipment to improve their efficiency.

Job creation

Multinational companies often set up production plants in several countries so that creates several job opportunities for the unemployed.

Political ideologies

Along with trade, people have spread their views about the world through borders. The concepts of communism, feminism and anti-racism along with several others have advanced greatly thanks to the global attention they received.

Historical significance of Economics

Economics has contributed greatly to society over the course of its existence. Mercantilism was one of the first recorded economic policies. Back in the 16th century, countries that had too many exports applied this policy;placing restrictions on and taxing incoming goods and services to balance the gold and silver coming into and leaving their country. 

In the 18th century, a group of economics called “physiocrats” emphasised the need to focus on agriculture and that helped elevate the farming industry to the standard we know of today. In more recent times, 

The Emergency Economic Stabilization Act of 2008  is a recent example of how an economic policy reportedly saved 11 billion dollars and 1 million jobs. 

Now let’s take a look at significant economists:

Adam Smith

The Scottish pioneer of economics changed the world with his book “The Wealth of Nations” which includes many of the modern economic practices we use today and the basis for several theories.He is also attributed with advancing moral philosophy to uncharted territories and finding capitalism.

Karl Marx

The father of communism himself was an economist. His impact on the world is phenomenal, having founded the basis for a whole new system of governance and posing moral dilemmas that no one has the answers to to this day. 

John Maynard Keynes

One of the most prolific and articulate economists of his generation, Keynes founded macroeconomics and created several economic policies that helped countries during both the world wars and the great depression.

Understanding Perspectives

If you’re still asking yourself “ why is economics important?”, ironically, economics is the perfect subject for you. One of the main jobs of an economist is scrutinizing and questioning everything. This means that economics leaves plenty of room for debates and discussions. Through these disputes, a dialect is formed between intellectuals so they are able to listen to each other’s views, opinions and analysis on important matters. 

This allows us to understand more perspectives. For example; there is a huge divide among economists on whether to allow the free market allocate resources or push for government intervention. Both sides have very reasonable points and thus the debate is always a stalemate. This allowed us to comprise and reach the creative solution of adopting mixed markets which apply both the mechanics in balance. Most of these discussions end up giving us much needed innovative solutions. 

Conclusion

So why is economics important? Take your pick. The impact of economics on the world is undeniable. This subject has helped the world progress in several social, political and moral aspects. It has helped us ask questions we never dared to ask. It helps us evaluate our decisions and boost our critical thinking skills. Economists today are working tirelessly to make sure that we get to keep the commodities we are accustomed to in modern times. They are making predictions about the future to prepare us for the worst situations. It is crucial to keep studying and analysing economics to grow as a community, society and race in general.  

Reference


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