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Hello everyone! In this post, we will talk a little bit about what economics is and why you should understand it.
Why talk about why you should understand it?
Because, well, I think it’s boring to just provide a definition of the word which I’m sure some of you have heard about before you even heard about this website.
So, let’s begin!
What is economics?
In classic economics style, let’s start with the definition.
Definition:
Economics is the study of how people allocate scarce resources for production, distribution, and consumption both individually and collectively.
If you think that’s abstract, come a little closer to home and imagine that you have a thousand dollars in your pocket.
For some of you, you might think that that’s a very big amount of money – you can buy all the chocolates you want and so many video games you might declare, rejoicing all the way. But then, let’s suppose you do that. And it turns out that you were supposed to use the thousand dollars to pay for your rental.
What happens then?
Well, I guess you can’t pay rent.
And there we have it – scarcity.
Although the $1000 seemed like a lot to you, they were not an infinite amount of money, and after you spent it, it was gone, and you couldn’t use it on the rent that you were supposed to pay.
But then imagine now that you’re in a scenario where you don’t have to pay that rent and you just have $1000.
Does that mean that you should infinitely rejoice?
Well, it’s nice to have $1000 for sure, but if you’re thinking like an economist, then the following non-exhaustive list of questions might pop into your head:
How should I spend my money?
When should I spend my money?
Should I spend all of it?
Should I spend some now so that I can get more in the future?
Should I spend it all now? (because I’m not sure if tomorrow will ever come).
Should I give it to someone else?
Should I convert this money into another currency today so that I can spend it on more stuff in the future, one year down the line?
Should I put it into a stock, a bond, or savings account A, B, or C if I want this money to have more value in the future?
Will I be able to buy more stuff in the future if I wait until next year to spend it?
These questions are evidence that you are faced with a choice because of scarcity.
The fact that you are asking these questions reveals an uncomfortable truth: some choices are better than others.
For example, spending a thousand dollars on learning a skill that will make you ten thousand dollars one year down the line makes a lot of sense (hint: buy our resources? LOL), but maybe buying 333 stacks of Pringles makes a little less, and using the $1000 as collateral to borrow $10,000 so you can bet on horse races is going to ruin you.
Why Learn Economics?
So why should you learn economics then?
Will it immediately make you become rich? Probably not.
Will it immediately teach you how to invest? Maybe not.
Will it ensure that you will never face struggles in your life? Probably not either.
But it will teach you about the constraints and the choices that we face in society on a deeper level than just “Oh no, I am out of money!”
After all, understanding economics is understanding the many choices that you can make not only with money but also with resources in terms of how we save, spend, and invest these resources.
It is also understanding that every entity in the world – every family, every business, every government, society, country – is subject to those rules as well: money is not unlimited, time is not unlimited either, and every moment we exist poses a question of how our resources should be dedicated towards the best possible outcomes.
I hope that understanding economics will help you see the world in a new and hopefully interesting light that will illuminate your path in one small way or another.
Thank you for reading and I look forward to seeing you in the next posts and resources ahead!
