Why Study Economics?

What makes the price of oil go up?   Why is there unemployment?  What is inflation and why would anyone care?  All of these are questions where economics plays an important role.  In short, economics plays a central role in your life.  Wondering how companies will ever be able to continue producing CD's?  Will itunes put them out of business?  Worried about what job to pursue?  Wondering about why some fields get paid more than others?   Economics!  Thinking about the cost of gasoline and what makes it so high?  Economics!  Worried about rent and trying to figure out where to live?  Economics again!  The tuition keeps rising.  Why?  All of these questions revolve around economics and economics plays a key role in these and many other questions.  In short, economics is all around you. 

So for the person who is curious about how the world works, knowing something about economics is a pretty important thing, and the view point of economists is a powerful way to examine how a part of the world works.  Economists see that scarcity is a fundamental fact in our life.   In short, there is simply not enough goods and services to provide for the needs and wants of the population.  If we try to increase the amount of support for preschool programs, we are likely to have to cut programs for the aged.  If we want more resources to flow to the production of tanks, we will likely have to reduce the number of pianos we would produce.  In short, as individuals and as a society, we face scarcity.  As a result, choices must be made.  It is the process of how these choices are made that is of fascination to the economist.  We like thinking about different mechanisms that could be used to make these decisions.  And at the end, our understanding of economics is important - especially when candidates for public office claim they have the answer to inflation or unemployment or any other evil you can imagine.   A good dose of economics will often make the unworkability of the proposal evident.   A bit of economics can be a really powerful thing.

Joke On Economics

Q: How has French revolution affected world economic growth?
A: Too early to say.

Q: Why does Treasury only have 10 minutes for morning tea ?
A: If they had any longer, they would need to re-train all the economists.

Q: Did you hear of the economist who dove into his swimming pool and broke his neck?
A: He forgot to seasonally adjust his pool.

Q: Why did the market economist cross the road?
A: To reach the consensus forecast.

Q: How many Chicago School economists does it take to change a light bulb?
A: None. If the light bulb needed changing the market would have already done it.

Q: How many mainstream economists does it take to change a light bulb?
A1: Two. One to assume the existence of ladder and one to change the bulb.

A2: Two. One to assume the existence of latter and one to change the bulb.

Q: How many neo-classical economists does it take to change a light bulb?
A: It depends on the wage rate.

Q: How many conservative economists does it take to change a light bulb?

A1: None. The darkness will cause the light bulb to change by itself.

A2: None. If it really needed changing, market forces would have caused it to happen.

A3: None. If the government would just leave it alone, it would screw itself in.

A4. None. "There is no need to change the light bulb. All the conditions for illumination are in place.

A5. None, because, look! It's getting brighter! It's definitely getting brighter !!!

A6. None; they're all waiting for the unseen hand of the market to correct the lighting disequilibrium.

Q: How many Wharton MBAs does it take to change a light bulb?
A: Only one, if you hire me. I can actually change the light bulb by myself. As you can see from my resume, I've had extensive experience changing light bulbs in my previous positions. I've also been named to the Wharton Light Bulb list, and am presently a teaching assistant for Light Bulb Management 666. My only weakness is that I'm compulsive about changing light bulbs in my spare time.

Q: How many B-school doctoral students does it take to change a light bulb?
A: I'm writing my dissertation on that topic; I should have an answer for you in about 5 years.

Q: How many investors does it take to change a light bulb?
A: None - the market has already discounted the change.

Definitions of Economics from Historic Textbooks

"Economics is the study of people in the ordinary business of life."
-- Alfred Marshall, Principles of economics; an introductory volume (London: Macmillan, 1890)
"Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses."
-- Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: MacMillan, 1932)
Economics is the "study of how societies use scarce resources to produce valuable commodities and distribute them among different people."
-- Paul A. Samuelson, Economics (New York: McGraw-Hill, 1948)

What Is Economics

Economics is the study of how people choose to use resources. Resources include the time and talent people have available, the land, buildings, equipment, and other tools on hand, and the knowledge of how to combine them to create useful products and services.
Important choices involve how much time to devote to work, to school, and to leisure, how many dollars to spend and how many to save, how to combine resources to produce goods and services, and how to vote and shape the level of taxes and the role of government.
Often, people appear to use their resources to improve their well-being. Well-being includes the satisfaction people gain from the products and services they choose to consume, from their time spent in leisure and with family and community as well as in jobs, and the security and services provided by effective governments. Sometimes, however, people appear to use their resources in ways that don't improve their well-being.
In short, economics includes the study of labor, land, and investments, of money, income, and production, and of taxes and government expenditures. Economists seek to measure well-being, to learn how well-being may increase overtime, and to evaluate the well-being of the rich and the poor. The most famous book in economics is the Inquiry into the Nature and Causes of The Wealth of Nations written by Adam Smith, and published in 1776 in Scotland.
Although the behavior of individuals is important, economics also addresses the collective behavior of businesses and industries, governments and countries, and the globe as a whole. Microeconomics starts by thinking about how individuals make decisions. Macroeconomics considers aggregate outcomes. The two points of view are essential in understanding most economic phenomena.