I feel like
Armchair Economics needs somewhat of an
introductory post so that some basic principles of economics can be established from the start which can be
seen, either directly or indirectly, in every topic on this site, as
well as in every topic regarding economics for that matter. Most of
the content in this post will probably seem boring to most, but the introductory economics are absolutely necessary if you want to have any understanding of things
I plan to talk about on this blog. Also, in an effort to make this
blog and its posts as authentic as possible, I am going to write
every post from my leather armchair.
What is
Economics?
The US economy? The UK economy? Gross
Domestic Product? International trade? Finance? Well, yes and no, but
mostly no. Look at it like this: These things are based on
economics, not the other way around. Simply put, economics is about
rational human beings making choices, and the how and why behind
those choices. Economics can also usually answer the other
interrogatives as well (who, what, when, where, and how much). I
agree with Landsburg in stating that the world “is full of
mysteries” that spark curiosity, and that economics is about
recognizing this and attempting to solve those mysteries in a manner
that is consistent with the assumption that humans behave a certain
way for a reason. In certain cases, this can be called sociological
economics or psychological economics. Attempting to solve these
mysteries is made easier with the use of assumptions and models.
Again, there may never be an absolute solution to
a particular mystery, but proposing some ideas doesn't hurt.
A
real-life example that illustrates the answering of the
aforementioned “interrogatives”
Yesterday, I
bought some Peanut Butter M&M's (my favorite candy) at CVS.
- Who?
Me, obviously. Unless I paid them or provided a service for them,
what incentive would someone else have to go buy
me candy?
- What? Peanut Butter M&M's. The M&M's cost the same as a Crunch bar, but I benefit more from the M&M's because I enjoy them more.
- When? Around 2:00 PM. Up until that time, the benefit of eating the M&M's didn't outweigh the cost walking down to CVS to get them. Thus I didn't have a high enough demand for them until 2:00.
- Where?
CVS. There, the M&M's cost $.79. At Harris Teeter, they cost
$.99. The obvious benefit is a savings of $.20. This is, of course,
ignoring the fact that Harris Teeter is about 2 miles from my house
whereas CVS is right down the street, thus CVS is even more
beneficial.
- Why? Simply put, the benefits of receiving and eating the M&M's obviously were greater than the cost of acquiring them.
- How?
I walked to CVS. I could have driven my truck or ridden a bike, but
for me the cost of walking was less than that of driving or
pedaling.
- How much? 1 pack. I bought 1 pack instead of 2 because the marginal benefit of the second pack of M&M's was not greater than its cost.
Assumptions
Included in these
basic principles are simple propositions that economists call
assumptions. Assumptions allow us to simplify the seemingly complex
world in which we live and make certain aspects of it easier to
understand. Essentially, they simplify situations or issues and make
problem-solving easier and more approachable. For example, if we
wanted to approach or understand international trade, we could assume that
there are only two countries in the world and that each country
produces only two goods. While quite unrealistic, the assumption
simplifies the concept and we can have a better understanding and a
tighter focus. Assumptions comprise the framework of
economics, and everything and anything related to economics is built
upon certain underlying assumptions.
Models
In third grade, I
made a model of the
solar system by attaching painted styrofoam balls to some clothes
hangers. Similarly, economists use models like diagrams and equations
which are built with assumptions. Just like my model in third grade
simplified the solar system, economic models attempt to simplify
reality in order to better understand it.
I suppose I'm
getting a bit long-winded here, time to wrap things up I suppose.
I'll do so with several final introductory propositions. The
applicability of the theories and laws and basic principles of economics is vast.
Landsburg, and any other economist for that matter, uses economic
reasoning when observing human behavior. Moreover, when the range of
that applicability is in question, he “always prefers to risk error
in the direction of being overly inclusive.” It definitely makes
things a bit more interesting (especially in terms of introductory economics), and you will soon see why.
Best,
Tyler
8TVQYCHRHQSU
8TVQYCHRHQSU
0 comments:
Post a Comment