Ideassey

What is economics? It is how you chose to come to this site. I don’t mean how you opened a computer, typed a link and pressed the Enter key. I mean the logical process to deciding to come here. Economics is the study of decision making. Wait, I thought it was about money. Well… yes, but that’s oversimplifying the discipline. There are plenty of fields that don’t involve money like game theory, which focus on how multiple players decide based on others’ actions, and econometrics to explain trends in decisions or justify the rationale for a decision. It just happens a lot of important decisions for anyone – regardless of identity, creed, or culture – involve money. And also importantly to economists, money is measurable. One can record and calculate money in precise amounts. How does one measure happiness or security which also influence human decision-making?

Going back to the example, you had a little downtime, considered what you’d like to do, and decided to dig into economics, whether to scratch that curiosity in your head or to find another resource. Even further, you probably compared me to Khan Academy (no hard feelings, I understand). Maybe my site was formatted in a more user-friendly way. Maybe my writing style appealed to you. Maybe you already had the link (we’ll learn more about decision pitfalls including inertia later). That logical process is what we try to figure out and capture using models (also more on that later).

In these processes and models, we also try to understand the constraints just as well as the choices. You had leisure time, yes, but not infinite leisure time. Choosing to read this meant giving up another activity such as video games, exercise, or maybe studying another topic. There are trade-offs and this is a word you should become familiar seeing. To simplify such trade-offs, we perform cost-benefit analysis to make sense of what we observe.

Well, what if I found out I made a mistake coming here and I’d rather do something else? It happens. If everyone made the right choices, every economist would probably be out of a job. Economic theory assumes human beings are perfectly rational but economic reality has shown people can be wrong, sometimes stupid. And they rarely learn. Not like you and I, my friend.

To conclude, this course focuses on microeconomics, the decisions of individuals and small groups and how they affect one another. We’ll be covering:

• Why do people or groups choose what they do?
• What causes markets?
• Supply and demand, elasticity, and specialization.
• Markets, including monopolies, property rights, and externalities.
• Strategic behavior and games
• Public goods and taxes
• And other topics that involve microeconomics, such as energy, labor, et cetera

The goal is to provide the building blocks of economic theory and have a solid foundation for what you learn later (if you choose to continue) and also so you can then recognize when they appear in the world and be a better-informed person.

The building blocks all center around these core principles. I’ll point out them out the first few times but you should constantly ask yourself which principle a particular concept or aspect of a theory aligns with.

The 7 principles that guide decisions, or at least are supposed to:

1. Scarcity. There are numerous needs and wants but resources are finite. Thus having more of one thing demands less of another.
2. Costs and Benefits. One should only take a decision where the additional benefits exceed the additional costs.
3. Incentives Matter. An agent is likely to consider or take a decision where benefits are increased, and less likely if costs are increased.
4. Comparative Advantage. Each agent does best when they choose the option with the lowest opportunity costs.
5. Increasing opportunity cost. This ties to the scarcity principle. When expanding production, resources will cost more incrementally.
6. Efficiency. It’s an important social goal that as the pie expands, everyone gets a larger slice.
7. Equilibrium. In theory, there’s an equilibrium between all agents that leaves no unexploited opportunities but may not yield the most gains for everyone.