Many of us think that economics is about graphs and policies and it can be only mastered with a help of formal education and research.
Well, Theoretically, Economics may seem to be all about numbers and finances. An average person may not feel inclined towards economics because to some it is boring and to some, it may seem like rocket science.
It is far from both. Economics is a part of our lives we always pay attention to but hardly recognize. Whether we understand it or not, Economics is relevant at every time in our lives.
WHAT IS ECONOMICS?
Economics has been defined in many ways. It is the study of how governments and people make decisions. It is how resources are used and how people respond to incentives. It principally deals with decision-making.
When decision-making involves a large group of stakeholders like a country or the entire world, it is called Macroeconomics.
When the focus is on individual decisions then the study is called Microeconomics.
But why should we encourage everyone to understand it?
Well, let us explore simple ways in which economics can help people have a better quality of life.
It helps us make the right choices
Our lives are composed of small and big choices. When we make choices, we often weigh the pros and cons. When we analyse options to make the most positive and productive decision, we are dealing with economics.
If you seek employment and you have to choose whether to work in your hometown or to leave town, you are making an economic decision.
When a family saves to buy a house and monitors their expenses accordingly, they apply economics.
Even when you are waiting for a market offer to buy the iPhone you have been planning to buy, you are thinking like an economist.
When we have options and we choose one thing over the other, we are always giving up something to gain something else. What we sacrifice is called ‘Opportunity Cost’ in economics.
As long as your Opportunity cost is less than what you gain, you make the right decision.
We start thinking critically and practically
How many of us start our day off by reading our horoscopes and anticipating similar results for the rest of the day?
Well, maybe many of us can believe in such forecasts. But suppose you have an exam the same day and your horoscope says that you are going to excel in what you do.
Let us say there are two scenarios.
In the first one, you have studied everything about the subject that’s going to come in your exam. You read the horoscope which boosts your confidence more and you end up performing very well in your papers.
In the second scenario, you have hardly studied anything and you read the same horoscope and go for the exam. It makes you a little optimistic but you are still nervous because your mind cannot agree with the fact that you will perform well. You end up performing badly despite the forecast.
Economics has logical answers. You gain nothing if you don’t sacrifice something for it even if it is ‘time’.
In the first case, ‘your time and effort to study’ was the ‘opportunity cost’ that helped you gain good marks.
Economics helps us forecast the future better because it encourages us to think critically and make logic-based decisions.
No matter how much Indian families rely on horoscopes and astrology in the weddings of their children, they make sure to check their financial condition, lifestyle and status, security, etc. Some even go through family health histories and more.
When people practically see through situations to make a decision, all the principles they use are based on Economics.
Economics helps us in Problem-Solving
Economics is all about Problem-Solving. It provides us with tools to analyse and a skill set to decide.
On a micro-level, it can help us solve routine problems related to time and money. It gives us the rationale for decision-making.
When households are not able to manage their finances, then principles of Economics can be applied to find a solution.
Maybe the expenses are exceeding the income? Or maybe expenses are not properly controlled? Perhaps expenses are controlled but the income or savings are not adequate.
Economics makes us ask the right question and helps us find the right answers, thereby providing us with a way to solve our problems.
The term ‘Scarcity’ is introduced to us
We are all aware of the Scarcity of resources, and economics constantly reminds us of that. It helps us understand that we cannot have an unlimited desire for limited resources.
As such, it helps us keep a check on our consumption. This is done by the introduction of the supply and demand chain.
When there is too much demand for something scarce, the prices go high. When there is less scarcity, prices are low.
The principle of scarcity makes us pay a price for utilising or buying scarce resources thereby educating us on the importance of saving scarce resources.
On a national level, the Scarcity principle helps governments to decide how to allocate resources efficiently.
It helps us focus on costs and benefits
As per Economics, any rational person will make decisions focusing on costs and benefits.
It means that we should choose to do something only when we get an extra benefit (or incremental benefit) out of it, which should be greater than the extra cost we put in.
This is the cost-benefit principle and determining costs and benefits efficiently are important steps in applying this principle.
Should you buy the expensive product you have been planning to buy?
Which country should you go on a trip to?
What College degree should you study for?
Such questions can have better answers if supported with a cost-benefit analysis.
However, the cost-benefit analysis should not be applied forcefully in all scenarios of life.
Sometimes we may have to act selflessly without getting anything else in return. When we have the chance to help someone, give away things to the less privileged, or contribute in financial or intangible ways for some welfare, we should focus on the larger purpose.
Even then, we receive benefits like satisfaction, joy and fulfilment.
Economics can help us choose which cause to support and which path to take to help make the world better and more efficient.
Conclusion: The importance of Economics
The majority of our life decisions will depend on economic factors and most of the changes we experience in life will be caused by a change in World economics.
We have seen reasons why and how Economics can help us in different scenarios of our lives.
It does not just simplify our lives but also helps us make the world a better place for the future.
By helping us identify the choices which will result in the efficient allocation of scarce resources, it helps us in welfare.
Everyone has a goal or objective in life. How have you thought of reaching that goal? What is the most effective way of reaching the goal?
Perhaps, a basic understanding of Economics can help you set your goal better.