I was visiting with a college friend yesterday, slipping around Longmont in the snow and trying to have meaningful conversation through a haze of caffeine and frozen breath. Our talk quickly turned to problems with society, or lack thereof. As curmudgeonly as I am, I tend to be of the opinion that humanity is working toward a more sustainable, equitable future. And for the amount of Marxism I spout, I also tend to favor capitalism as an economic system. However, there is an amazing amount of bad rap that capitalism gets. I think that a lot of this stems from lack of understanding, and just the fact that applying an idealized system in the real world rarely works out as ideally promised.
Hence, I am now undertaking a project to walk through certain facets of economics that I think are not well understood. After all, a major tenet of economic theory is that the consumer is completely informed, which just doesn't happen. By spreading the word about economic theory, I hope to make the world of trade a little easier to navigate. As a bonus, students of economics can hopefully get slightly better grades in their classes.
I'm going to come at this from my background as an economics tutor and teaching assistant, trying to simplify and use the most real-world examples as possible, while also investigating aspects that I myself don't fully understand. I would love any critiques of the entries here in order to inform the public better. I'd ultimately like to integrate this blog with weekly lectures in a class I'm co-instructing this spring.
So, let's begin! We'll start with the basics: What exactly is economics?
The answer Wikipedia (the ultimate source) will give you is "the social science that governs economic activity to gain an understanding of the processes that govern the production, distribution, and consumption of goods and services in an economy." Cool. So, economics is the study of how things and actions are made, move around, and used. Let's break down that definition just a little more:
"Goods" are tangible, physical things that are traded in an economy, like computers, scarves or, my favorite, coffee.
"Services" are actions people perform that can be traded. For example, a medical examination is a service. This is separate from the goods used to perform the examination, because they were purchased (or traded) before the exam took place. Other examples of services are babysitting, construction work, or technical support.
"Production" is how things are made. This typically involves some exchange of goods, like machinery, and services, employee labor, before whatever it is you are making can be produced. You can see how this can get complicated really fast.
"Distribution" is how things are moved around the economy. For example, a certain laptop model can either be purchased in a store like Best Buy or on Amazon. Each of these purchases is distinct, as there are typically different prices and motivations for the person buying the laptop. Amazon will usually have a shipping fee, but the customer doesn't have to travel to best Buy when they purchase from Amazon. Hence, the customer will weigh the various factors involved in this purchase and decide whether or not to purchase from Best Buy, Amazon, or not purchase at all. Since Amazon and Best Buy are competing for the consumer's business, they are known as "competitors".
"Consumption" is the use of a good or service. When the customer in the above example makes their decision and purchases a laptop from either Amazon or Best Buy, they are consuming the laptop. Consumption can be confusing at first because it doesn't necessarily refer to using a good to the end of its useful life, like it is when used to apply to food. Consuming food is still technically consumption in economics, as long as the food traveled through the economic system, but consuming a laptop certainly isn't the same thing as eating it.
There is a distinction between microeconomics and macroeconomics, too. I'll get into this more at a later date, but for now I'll leave you with a simple definition of either. Microeconomics is the study of a specific point in an economic system, such as the supply and demand of oranges produced by a single orange grower in California. Macroeconomics, as the name implies, focuses on larger areas of the economy, such as the interaction between trade tariffs and orange sales in the USA and Mexico.
I'll let you all muddle over these definitions for a while. I'll return in my next blog post with some definitions and examples of supply and demand, which I consider the bread and butter of modeling an economy of any scale.
As always, leave your questions or critiques in the comments section below. I'll definitely take this on the thread of whatever the readers want to know more about, so give me your input!
Hence, I am now undertaking a project to walk through certain facets of economics that I think are not well understood. After all, a major tenet of economic theory is that the consumer is completely informed, which just doesn't happen. By spreading the word about economic theory, I hope to make the world of trade a little easier to navigate. As a bonus, students of economics can hopefully get slightly better grades in their classes.
I'm going to come at this from my background as an economics tutor and teaching assistant, trying to simplify and use the most real-world examples as possible, while also investigating aspects that I myself don't fully understand. I would love any critiques of the entries here in order to inform the public better. I'd ultimately like to integrate this blog with weekly lectures in a class I'm co-instructing this spring.
So, let's begin! We'll start with the basics: What exactly is economics?
The answer Wikipedia (the ultimate source) will give you is "the social science that governs economic activity to gain an understanding of the processes that govern the production, distribution, and consumption of goods and services in an economy." Cool. So, economics is the study of how things and actions are made, move around, and used. Let's break down that definition just a little more:
"Goods" are tangible, physical things that are traded in an economy, like computers, scarves or, my favorite, coffee.
"Services" are actions people perform that can be traded. For example, a medical examination is a service. This is separate from the goods used to perform the examination, because they were purchased (or traded) before the exam took place. Other examples of services are babysitting, construction work, or technical support.
"Production" is how things are made. This typically involves some exchange of goods, like machinery, and services, employee labor, before whatever it is you are making can be produced. You can see how this can get complicated really fast.
"Distribution" is how things are moved around the economy. For example, a certain laptop model can either be purchased in a store like Best Buy or on Amazon. Each of these purchases is distinct, as there are typically different prices and motivations for the person buying the laptop. Amazon will usually have a shipping fee, but the customer doesn't have to travel to best Buy when they purchase from Amazon. Hence, the customer will weigh the various factors involved in this purchase and decide whether or not to purchase from Best Buy, Amazon, or not purchase at all. Since Amazon and Best Buy are competing for the consumer's business, they are known as "competitors".
"Consumption" is the use of a good or service. When the customer in the above example makes their decision and purchases a laptop from either Amazon or Best Buy, they are consuming the laptop. Consumption can be confusing at first because it doesn't necessarily refer to using a good to the end of its useful life, like it is when used to apply to food. Consuming food is still technically consumption in economics, as long as the food traveled through the economic system, but consuming a laptop certainly isn't the same thing as eating it.
There is a distinction between microeconomics and macroeconomics, too. I'll get into this more at a later date, but for now I'll leave you with a simple definition of either. Microeconomics is the study of a specific point in an economic system, such as the supply and demand of oranges produced by a single orange grower in California. Macroeconomics, as the name implies, focuses on larger areas of the economy, such as the interaction between trade tariffs and orange sales in the USA and Mexico.
I'll let you all muddle over these definitions for a while. I'll return in my next blog post with some definitions and examples of supply and demand, which I consider the bread and butter of modeling an economy of any scale.
As always, leave your questions or critiques in the comments section below. I'll definitely take this on the thread of whatever the readers want to know more about, so give me your input!
