After studying economics for two weeks, I have learned that economics is the study of how we make decisions under the conditions of scarcity. Since our wants cannot all be acquired, we must make certain decisions and give up opportunities along the way. Thus, the concept of economics applies to everything we do in our daily lives.
Even if we don't think about it, we weigh the options for everything we do. During a stressful day at midnight while doing homework, we might ask ourselves: "Is this assignment more important than my sleep? Or is sleep more important?" If our grades were at risk, we would place the importance of the assignment over the importance of sleep; if the assignment does not mean much to our overall grade, we might think twice before sacrificing our sleep. This is the concept of opportunity costs and trade offs -- by choosing to do one thing over the other, we forgo our opportunity to complete the other task. The status of our grades makes up the concept of Marginal Benefit equaling Marginal Cost: we will continue to do homework until the cost of losing sleep exceeds that of finishing an assignment.
Incentives, a major source of motivation, is a factor that plays a part in economics as well as our daily lives. The incentive for doing a blog post for a economics class is the grade; if the assignment did absolutely nothing for us (or in a way so minimal that the cost of time spent on the assignment outweighs the benefit of actually doing it), there would be no reason to do it. This applies to almost every area in our lives, from studying for a test to eating food (in which, without the incentive to survive, we'd be all dead...).
There are three important questions that are asked in an economic environment: (1) What will be produced? (2) How will it be produced? (3) Who will get the final product?
(1) Goods and services that can be produced at a continuing profit will be produced. If, for some reason, the population of the United States began to demand for chocolate-flavored pencils, the chocolate-flavored pencil business would be able to make chocolate-flavored pencils at a continuing profit, therefore expanding its industry. If people stopped buying marshmallow-flavored crayons because of the sudden surge in the popularity of the chocolate-flavored pencil business, the production of marshmallow-flavored crayons would no longer yield a profit, and its industry would contract.
(2) The goods and services would be produced in a way that minimizes cost. If it takes a million dollars for a business to make a single chocolate-flavored pencil, it wouldn't make it. Instead, the business would probably exploit some other country to make the pencils for them under that circumstance -- if it didn't, the competition might be able to knock the business out of the industry.
(3) The people who are rich enough the afford the chocolate-flavored pencil (and gullible enough to not know that pencils can't be eaten) will receive the product. They are willing and able to pay for the good.
These three questions help make up the market system in which America follows. By giving people the opportunity to vote on what should be produced and what shouldn't be produced with their "dollar votes" produces a kind of efficiency that a command system would not be able to produce. The market system also incorporates specialization, private property, and freedom in both choice and enterprise. Not only can the people choose what is to be produced, they are probably happier because they at least get to own stuff.
In the third part of my first blog entry, I wrote about the products and companies that have engulfed my daily life (and the lives of many others). Without the market system, everything that I wrote about, such as the laptop that I cannot live without, the reign of many large corporations that I admire, and the career I'd like to pursue in the future, might not be possible.
Perhaps, if I lived under a command system, the thing that I would not be able to live without would be my temporary shelter, my favorite corporation would be the government, and the career I'd like to pursue would be a lifelong occupation of making nails for the central planning board. Or maybe chocolate-flavored pencils.
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