Let’s begin at the most basic stage. What is economics: what does the term mean? You might have taken Econ 111 at the University of Saskatchewan, or a similar course elsewhere, and depending on the context, you might have focused on different topics. Or perhaps you’ve never taken an economics course, in which case you might not have any preconceived ideas. So, let’s begin with a challenge and a bit of research on your part.
Learning Activity Do an Internet search using two words: “economics” and “definition” to see what materializes. What are the common terms used in the top five definitions? What are the similarities in the definitions? What are the differences among the definitions?
What did you find? Were you surprised? In your research, you likely found some similarities, or descriptions that include terms such as:
- Allocation
- Behaviour
- Decisions
- Markets
- Money
- Resources
- Scarcity
- Society
- Wants
- Wealth
Some people believe that economics is about only money and banking, or that it’s about accounting. While both of these topics can be explored using economic theory, the study of economics is much broader than that. It includes aspects of the entire list above. In its simplest form, economics is about making choices, or decisions. More importantly, it’s about making the best, or at least better choices and decisions. As Mankiw (2016) expresses in the textbook on page 14, “economics is the study of how humans make decisions in the face of scarcity.” He goes on to say that choices can be made at many different levels: individual choices (how did you choose to enrol in your current program?); family considerations (if and where to take a winter vacation); or business decisions (whether to expand your cattle herd, when to increase fertilizer use). Regardless of your profession, you must make decisions. You should note one important component in the definition, and that’s the term “scarcity.” Scarcity simply means that there isn’t enough to go around. For example, food, money and land are scarce resources. There are not enough of these resources to satisfy all wants/needs in society. Therefore, we (individuals, families, businesses, societies) have to decide who has access to resources or assets (how we allocate them), and how we are going to use them. Without the condition of scarcity, there would be enough resources for everyone and we wouldn’t have to allocate anything, rendering the study of economics moot. Another way in which we can think of economic theory is closely related to psychology, which studies human behaviour. Economics examines human decision-making behaviour, but in the context of production and consumption, and how people respond to incentives. For example, how will a farmer who grows corn, respond to a government policy that mandates a minimum amount of ethanol use (assuming corn is used to produce ethanol)? What would you do if you were the corn farmer?