Introduction To Economics

Unlike the usual math and science that we study in school because it’s been thrown at us since the day we were born, if you are actually studying economics, its highly likely that it’s because you think you may enjoy it or because your boss doesn’t want to do all the heavy brain work by himself or you just picked an A Level subject at random with your eyes closed.

Since textbooks are dry as hell and full of technical nonsense that the average student would not find interesting to read or anything, I thought that it was about time someone made a student-type guide for economics so that anyone could easily understand the subject without all the technical jargon getting in the way of an actually very interesting subject.

But why the hell do you want to study economics? I’ll tell you why. Why do you want to drink MacAllen instead of Jack Daniels? Why go to school when you can go to a club? Why study for a test when you can just cheat off the nerd on your right? All these daily decisions are economic decisions you make unconsciously every day. Economics at its core is all about decision making.

First step to getting a PhD in economics is for you to conceptualise the fact that everyone consumes. This consumption is not limited to just pigging out on cheese fries, as humans we consume different things for different reasons. Want to take a road trip? You’re going to need fuel. You want to be safe from the rain? You need a house. This is consumption. (I’ll put in the proper definitions in case you need them for your tests, don’t worry I got ya). Consumption is the act of using goods and services to satisfy wants.

But Uncle Shyam, how does this tie into the rest of economics?? Good question Jimmy, I'll tell you how. Consumption of goods leads to scarcity. What's scarcity? Well for example let's say you have no car, you'd really like a car isn't it. So you go and buy a Toyota. While waiting at a traffic light one day some trust fund kid pulls up to your left in an Aventador. Now you want an Aventador after you catch your girlfriend making eyes at the other guy. So after making some quick cash through a bank robbery you go and buy an Aventador. But soon enough at the same traffic light, you see the same trust fund kid pull up in the new Bugatti Chiron and guess who's making eyes at him again. Now you want a Bugatti (or a new girlfriend). This is scarcity, when your wants become unlimited soon you'll be wanting the Apollo Spacecraft for yourself when all you originally wanted was a Toyota. This is assuming you're a rational person of course and its completely human to reach a certain level that you were previously eyeing and then wanting more once you've reached the aforementioned level. However there's no way everyone can have their own spacecraft because they can't afford it isn't it. Scarcity is the situation that arises when unlimited human wants cannot be met by limited resources.

So what are these limited resources I'm rambling on about? Resources or Factors of Production or Inputs are essentially tools used by producers to make goods that you (consumers) want. There are three main types of resources. Capital, Labour and Land & Raw Materials. The latter two are self explanatory but capital just refers to man-made tools or machinery or factories etc. For example, if you want to buy the induction cooker looking iPhone 11, Apple would have to gather Raw Materials like metal and stuff, use their Capital to transform a hunk of metal into an iPhone and then sell it to you through a salesman(Labour). Not that hard if you give it some thought.

However in doing so, the world has a bit less metal to work with (unless you recycle). It just means that there is a finite amount of resources on Earth that cannot meet your unrealistic amount of wants. So what do you or producers do? Well due to limited resources, you have to make a choice.

Choices are made to answer the holy trinity: What, How and For Whom to produce these goods for. But making choices involves sacrifice doesn't it. Let's say you have a few million dollars and want to use some of your vacant land to build something. Being the philanthropist that you are, you can choose to build a hospital or a brothel. But if you build the hospital, you do not have the money or land to build the brothel and vice versa. This is a sacrifice, or in economic terms: opportunity cost. Opportunity Cost is the next best thing forgone when a choice is made.

While you take time to absorb the arcane knowledge I've just laid out for you, in my next post I'll show you how a singular graph can portray all these core economic concepts