What is Economics?

Economics to a lot of people means a system of production and how we provide goods and services to the market, however that is too simplistic. To understand an economy we must first understand what economics is; sure providing goods and services to the market is one thing but vitally important to understand that resources are not infinite, they are finite, so when we speak about economics, it simply means how we economise to provide for the market efficiently with scarce resources. Economics is a way we analyse an economy for material living standards of countries and societies and judging particular decision making can have an affect on the economy by certain individuals or institutions.

When we judge, we must look at the incentives over the goals when it comes to an economic system or any given policies; in other words, it is vitally important to look at the consequences of decision making over the intentions. It’s all well having good intentions, but intentions aren’t set in stone and often judging by intentions can lead to bad consequences. A prime example of bad decision making was the centralisation of agriculture in the Soviet Union which not only led millions to their death due to starvation, but also caused the devastation of once the 4th largest lake in the world; the Aral Sea. This lake was completely devastated by the year 1960 and was dried up which caused contamination of the land and destroyed the local fishing industry. So when we talk about the economy, we must judge decision making by the potential consequences rather than by intentions. It is also important to look at not only the short term consequences, but long term consequences.

So when describing economics it is the way in which we provide for the market efficiently that will determine the outcome of our living standards. It’s all well having an abundance of resources, but as we seen from the Soviet Union central planning due to inefficiency and lack of proper sound information from pricing, this led to misallocation of resources, surplus production of goods consumers did not want or need as well as shortages due to price controls.

Resources are scarce and what we must understand is that resources aren’t just designated for one specific thing in an economy, there are alternative uses. Politicians are good at giving promises to the people to provide goods for the people, however what you must understand is that the government cannot give to you without taking from another first; this simply means that whilst the government may provide certain goods created from the specific resources, it means less resources to producing other things. So it is important to ask the question “at what expense is there for less production elsewhere from those resources for what the government produces.” So what exactly do we mean by Scarcity?

The best way to describe scarcity is that peoples expectations of their needs and wants exceeds the quantity of resources that are available. People often want more than what they already have and aren’t content with what they have, people tend to want to spend what they cannot afford. People fail to understand that the problem is that there aren’t enough resources to go around to satisfy everyone’s desires and so regardless of whether it be a Capitalist, Socialist or even Fascist system, you must understand that there will be needs unmet in any economic system in place.

Don’t be fooled by the idea that our place in the economy is all about profit making and money, instead economics is a way in which we get things done efficiently with scarce resources to effectively improve material living standards. One only needs to compare Venezuela with someone of the world’s largest oil reserves but is sitting with one of the poorest living standards, yet Hong Kong with no natural resources due to investment, strong free trade, the free market has greatly improved their living standards. So to summarise, it’s how we provide for the market efficiently and effectively with using the least amount of resources whilst improving living standards.

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