As you begin your university course in economics, you’re probably wondering just how your studies will intersect with the world outside the classroom. In the following adapted excerpt from Foundations of Economics, author Andrew Gillespie highlights the importance of studying economics and provides visual walk-throughs of the some of the core concepts you’ll need to grasp to excel in your studies and to develop a full understanding of the economic landscape in which we live and work.
If you have ever wondered why the cost of a ticket to your favourite band’s last concert was so expensive, why you are paid so little in your part-time job, why your petrol is taxed so heavily, or why it is more expensive to get into a nightclub at weekends than during the week, or if you have ever wondered what influences the rate at which you change your currency into another when you go on holiday, why some people seem to be so much richer than others, or why some firms make more profits than others, then studying economics will be of interest to you! In fact, whether you know it or not, you are already an important part of the economic system. You are a consumer of products: every day, you are out there buying and consuming goods and services, and influencing the demand for them. You may also have a job, and so help to generate goods and services. If you are working, you are also paying taxes that are used to finance the provision of other products. However, simply being part of an economy is one thing; studying it is another.
By studying economics, you can develop an analytical approach that helps you to understand a wide range of issues from what determines the price of different products, to the causes, and consequences of unemployment, to the benefits of different forms of competition. By the end of this book, you should understand a whole range of economic issues, such as why some people earn more than others, why some economies grow faster than others, and why, if you set up in business, you might want to dominate a market.
The study of economics provides a number of models and frameworks that can be applied to a range of situations. The impact of an ageing population, price increases by your local supermarket, the returns on your investment by choosing to go to university, and the costs to society of smoking are all issues that you can analyse as part of economics once you have the necessary tools.
And at the heart of economics is human behaviour: what influences it and what happens when it changes? What makes people choose one course of action rather than another? If we want to change behaviour, what is the best way of doing this? If we want people to be more environmentally friendly, is this best achieved by taxing environmentally unfriendly behaviour? Or by subsidizing ‘good behaviour’ or by legislating? Economics affects people’s standard of living and how they live. The tax and benefits system will affect your incentive to work, your willingness to marry, to have children, to save money, and to have a pension. An understanding of economics therefore provides an insight into the factors that shape society and influence the success of your business or career.
Of course, you are not the only one wanting to understand the economy and the economic impact of policy decisions. Governments would also like to be able to influence the economy to achieve their objectives, such as faster economic growth and lower unemployment; most recently, there have been major debates on the best way to help governments to cope with major borrowings without causing another recession. Firms are interested in economic change because it will influence their ability to compete (for example, interest rates can affect their costs and demand for their products) and determine their future strategy (for example, what markets they should be targeting).
Employees are interested in economic conditions because these affect their earnings. Consumers want to know what is likely to happen to the prices of the things that they buy. Many different groups in society will therefore be interested in what influences the economy and how economies might change in the future. This probably explains why economic stories receive such media attention and why the subject has been studied so intensely over the years by economists.
Andrew Gillespie is Head of Business Studies and Accounts at d’Overbroek’s College, Oxford, and a visiting lecturer at Oxford Brookes University, Oxford. He is the author of Foundations of Economics and Business Economics. To see more economics concepts explained, visit the Foundations of Economics Online Resource Centre.
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