What Is Economics?
By Clint Kennedy
September 24, 2011
The field of economics analyzes resource usage in order to reach the most beneficial outcomes. In other words, how can we use the resources we have in a way that benefits the most people? Resources are what we use to produce goods and services, such as machines and equipment. Human labor is a part of the available resources for a company. Labor includes all the different types of work a human being can perform that hold a monetary value. Natural resources are a vital part of economic choices. Natural resources are not man made. The earth has already produced them for us. Examples would be water, petroleum, natural gas, wood, stone, and natural forms of energy like water power, wind power and solar energy.
Economic choices require giving one item up in order to get another. A company must choose which product it will produce. Alternative products are put on hold. Since a company’s purpose is to earn a profit, generally the most profitable good or service is what the company will provide. Profit is the money a company earns from sales, also called revenue, minus its costs. Costs would be payments for labor, energy, machines, building rent, etc. Economics adds the opportunity cost to the regular accounting costs just mentioned. Opportunity costs are the value of choices given up to make the most advantageous choice. For example, a middle age person has to give up drinking whole-milk and chooses to drink soy milk instead because it has less cholesterol. The satisfaction of tasting whole-milk is an opportunity cost of drinking the soy milk.
Economic choices are made by people, companies and political leaders. People decide which products they are going to buy. When people buy goods and services they are called consumers. Consumers must also decide how to best use their products, for example, they can play their choice of music quietly in their car or loud enough for others to here. Consumers decide what kind of energy they will use in their homes and how much energy will be used. Companies decide which good and/or service they will provide. They decide how a product will be produced and/or how a service will be delivered. Political leaders make economics decisions on how to best use resources on a larger scale. For example, should a city’s power grid be opened up to receive power from natural power supplies nearby and will consumers be able to choose from those new sources?
Economic choices are often evaluated with a cost benefit analysis. An economic choice such as using solar panels has benefits because solar energy is free from the sun and there is no pollution. There are costs though. The solar panels have to be purchased and installed at a certain cost. There needs to be sufficient energy storage or a back up energy supply for cloudy days, and so on. Existing energy supplies from coal, oil and natural gas have monthly bills of around $100 to $200 dollars. Installing solar panels can be thousands of dollars. Many homeowners and businesses decide that even though in the long run (over years) money would be saved, that the benefits do not justify the costs in the short run. That is, their economic choice is not to buy solar panels.
To be economically efficient, one must produce the maximum output with a given set of resources while creating the minimum costs. It is market forces that give incentives to reach the most efficient outcomes. A market is where a good or service is bought and sold. In today’s global economy, that market is often all around the world through telecommunication and the internet. Market forces are created by supply and demand. Supply is what product is offered in the market at different prices. Demand is how much consumers will buy at different prices. Where supply meets demand is called the market equilibrium. When the price is too high, consumers will not buy the entire product for sale. Company inventories will increase. Inventories are the product that is ready for sale. Companies will decrease production and lower the price. When the price is too low, not all consumers that want the product will be able to buy it. Companies will increase production and raise the price. For a more complete discussion of market forces, read the book Basic Economics Today.
An Example of Economics at Work
The technology sector has been growing even while other sectors, such as real estate, continue to remain depressed. One of the technology sectors to boom recently is apps, or application software. Apps can be used on different devices, such as phones, iPads, etc., and connect across different devices. Typical apps are for games, business document manipulation and organization, email storage and organization, etc. The demand for apps has created an opportunity for new companies and independent software developers. An example is the very popular and useful Trimit app created by D’Aloisio, which allows for quick summaries of web sites, which reduces research time on web sites. The innovative supply of apps has been met with an increasing demand. One of the costs of new technologies is that there will be a new technology to replace it soon. Old technologies become obsolete. Major technology companies like Compaq have become reduced and acquired. Often new softwares won’t even run on the old hardware, requiring an upgrade of both. An example of this cost is movies on DVD and Blue Ray. Storage of movies on computers and servers is increasing. This occurrence a long with TV connection to the internet will likely render the need to store movies on disks soon obsolete.
In the technology sector examples above, new products are introduced to the market according to the demand of consumers and companies. Competition between companies leads to a greater variety of products and services that are available at lower costs. This is the great benefit of markets: more selection at lower prices!
An Example of Market Failure
Energy costs in the US have been increasing at over 30% for years. Major energy companies, like Exxon, have been having record profits, even while many common Americans are struggling to get jobs. When the market is not able to reach an optimal outcome it is called market failure. The price reached in the market does not reflect the real social costs of the product. Market failures are corrected by government intervention and regulation. The government needs to intervene so that the prosperity of the oil companies is distributed to provide more alternative energies and job creation.
For more in depth discussions of basic economic concepts in today’s world, get the book Basic Economics Today!
Copyright © September 2011
By Clint Kennedy
September 24, 2011
The field of economics analyzes resource usage in order to reach the most beneficial outcomes. In other words, how can we use the resources we have in a way that benefits the most people? Resources are what we use to produce goods and services, such as machines and equipment. Human labor is a part of the available resources for a company. Labor includes all the different types of work a human being can perform that hold a monetary value. Natural resources are a vital part of economic choices. Natural resources are not man made. The earth has already produced them for us. Examples would be water, petroleum, natural gas, wood, stone, and natural forms of energy like water power, wind power and solar energy.
Economic choices require giving one item up in order to get another. A company must choose which product it will produce. Alternative products are put on hold. Since a company’s purpose is to earn a profit, generally the most profitable good or service is what the company will provide. Profit is the money a company earns from sales, also called revenue, minus its costs. Costs would be payments for labor, energy, machines, building rent, etc. Economics adds the opportunity cost to the regular accounting costs just mentioned. Opportunity costs are the value of choices given up to make the most advantageous choice. For example, a middle age person has to give up drinking whole-milk and chooses to drink soy milk instead because it has less cholesterol. The satisfaction of tasting whole-milk is an opportunity cost of drinking the soy milk.
Economic choices are made by people, companies and political leaders. People decide which products they are going to buy. When people buy goods and services they are called consumers. Consumers must also decide how to best use their products, for example, they can play their choice of music quietly in their car or loud enough for others to here. Consumers decide what kind of energy they will use in their homes and how much energy will be used. Companies decide which good and/or service they will provide. They decide how a product will be produced and/or how a service will be delivered. Political leaders make economics decisions on how to best use resources on a larger scale. For example, should a city’s power grid be opened up to receive power from natural power supplies nearby and will consumers be able to choose from those new sources?
Economic choices are often evaluated with a cost benefit analysis. An economic choice such as using solar panels has benefits because solar energy is free from the sun and there is no pollution. There are costs though. The solar panels have to be purchased and installed at a certain cost. There needs to be sufficient energy storage or a back up energy supply for cloudy days, and so on. Existing energy supplies from coal, oil and natural gas have monthly bills of around $100 to $200 dollars. Installing solar panels can be thousands of dollars. Many homeowners and businesses decide that even though in the long run (over years) money would be saved, that the benefits do not justify the costs in the short run. That is, their economic choice is not to buy solar panels.
To be economically efficient, one must produce the maximum output with a given set of resources while creating the minimum costs. It is market forces that give incentives to reach the most efficient outcomes. A market is where a good or service is bought and sold. In today’s global economy, that market is often all around the world through telecommunication and the internet. Market forces are created by supply and demand. Supply is what product is offered in the market at different prices. Demand is how much consumers will buy at different prices. Where supply meets demand is called the market equilibrium. When the price is too high, consumers will not buy the entire product for sale. Company inventories will increase. Inventories are the product that is ready for sale. Companies will decrease production and lower the price. When the price is too low, not all consumers that want the product will be able to buy it. Companies will increase production and raise the price. For a more complete discussion of market forces, read the book Basic Economics Today.
An Example of Economics at Work
The technology sector has been growing even while other sectors, such as real estate, continue to remain depressed. One of the technology sectors to boom recently is apps, or application software. Apps can be used on different devices, such as phones, iPads, etc., and connect across different devices. Typical apps are for games, business document manipulation and organization, email storage and organization, etc. The demand for apps has created an opportunity for new companies and independent software developers. An example is the very popular and useful Trimit app created by D’Aloisio, which allows for quick summaries of web sites, which reduces research time on web sites. The innovative supply of apps has been met with an increasing demand. One of the costs of new technologies is that there will be a new technology to replace it soon. Old technologies become obsolete. Major technology companies like Compaq have become reduced and acquired. Often new softwares won’t even run on the old hardware, requiring an upgrade of both. An example of this cost is movies on DVD and Blue Ray. Storage of movies on computers and servers is increasing. This occurrence a long with TV connection to the internet will likely render the need to store movies on disks soon obsolete.
In the technology sector examples above, new products are introduced to the market according to the demand of consumers and companies. Competition between companies leads to a greater variety of products and services that are available at lower costs. This is the great benefit of markets: more selection at lower prices!
An Example of Market Failure
Energy costs in the US have been increasing at over 30% for years. Major energy companies, like Exxon, have been having record profits, even while many common Americans are struggling to get jobs. When the market is not able to reach an optimal outcome it is called market failure. The price reached in the market does not reflect the real social costs of the product. Market failures are corrected by government intervention and regulation. The government needs to intervene so that the prosperity of the oil companies is distributed to provide more alternative energies and job creation.
For more in depth discussions of basic economic concepts in today’s world, get the book Basic Economics Today!
Copyright © September 2011
