Why Study Economics?

You may be asking yourself, "Why should I study economics?" Scarcity probably isn't a problem you will be able to solve, and allocating resources sounds like a job for politicians and business own­ers and managers.

But studying economics concerns you as an individ­ual, as an earner and spender, and as a citizen. In fact, as a member of society, you can­not escape econom­ics. Your food, home, clothes, and even your leisure time are all affected, in part, by economic forces. The study of economics will help you to understand these forces better and to live a fuller life.

Some day, whether you own, manage, or work for a business, understanding economics and how our eco­nomic system operates will help you make sound choices and decisions for your company and for your own future. In fact, one common definition of eco­nomics is "the study of how people make a living." The more you know about economics, the better deci­sions you will be able to make.

Economics also will help you to fulfill your responsi­bilities as a citizen in a democracy. Unlike other countries, in which government officials or dictators control the nation's affairs, the United States expects its citizens to share in governing. As a voter, you will be asked to express your opinion on many questions involving economic issues.

The study of economics will help you understand the issues facing businesses and governments while helping you make intelligent personal decisions. Economists, the professionals who study economics, discuss this decision-making process in terms of opportunity costs and trade-offs.

Opportunity Costs/Trade-Offs

Suppose you saved enough money to buy the CD player you have always wanted. But while you saved your money, you started playing more basketball, and now you want a pair of pump sneakers. You can afford to buy either a CD player or sneakers, but not both. You need to make a decision!

Economists describe these kinds of choices in terms of opportunity costs. The opportunity cost of some­thing is its cost measured in terms of what you give up to get it. So, the opportunity cost of the CD player would be new sneakers. Similarly, the opportunity cost of reading these pages is whatever else you might be doing right now.

Businesses also have choices and opportunity costs. In planning an advertising program, for example, a store owner might have to choose between a series of radio or TV commercials or a direct-mail campaign. If she advertises on radio, her opportunity cost is the benefit of a direct-mail campaign.

Like individuals and business firms, government also experiences oppor­tunity costs. If, for example, the federal government chooses to increase its spending for roads by reduc­ing the number of naval warships to be built, the opportunity cost of the improved road network would be a more powerful navy.

Trade-offs are closely related to opportunity costs, and, believe it or not, you make them every day. Few decisions are "all or nothing." It's possible that by shopping, you might be able to purchase both a less expensive CD player and an ordinary pair of basket­ball shoes. So you trade quality for the ability to have new shoes and a CD player.

A business might combine a limited radio or TV advertising campaign with an aggressive direct-mail campaign, and the government could delay building some ships in order to repair heavily traveled high­ways. Each of these decisions is a trade-off—accepting less of one thing to get more of another.

Decisions about protecting the environment provide particularly clear examples of trade-offs.

• Automotive engineers, asthma sufferers, politi­cians, and environmentalists may argue about specific standards for automobile emissions, but the cost of completely eliminating harmful emis­sions is very high. As a result, government stand­ards represent a trade-off among the competing needs of these groups.

• Logging companies may give up (trade off) the right to harvest timber in a portion of the habitat of an endangered owl to continue operations nearby.

• Tuna fishing companies may give up some profits to invest in expensive equipment and complex fishing techniques to save the lives of dolphins which often are caught in standard tuna nets.

Major business decisions, important social issues, and the most routine decisions you make at the grocery store all involve trade-offs. Economists assume that people and societies constantly weigh the costs and benefits of alternative decisions and policies in order to get the most from their resources. By weighing the pros and cons of each option, people make decisions at an imaginary place economists call the margin.