Economic Principles Overview
In a Nutshell
All of economics can be boiled down to one fundamental principle: scarcity. If everybody could have everything they want, whenever they want it, then we wouldn't need economics. Or maybe politics or warfare, either. We could all just sit around playing on top of our endless mountain of toys.
But the real world doesn't work quite like that. We can't have it all. We have to make choices. That's scarcity: no person or nation, no matter how wealthy, has all of the resources needed to satisfy all needs and wants. Instead, we are all forced to accept trade-offs.
Economics is, at its essence, the study of how different individuals, societies, and nations make those choices.
Some individuals and nations make better choices than others; some are more successful in realizing all of the benefits possible given the resources available to them. Economists track the success of individuals and nations by compiling a wide range of statistical data. They measure income, they calculate economic growth, and they chart productivity. But statistics always tell only part of the story. A complete understanding of economic success requires that economists look beneath the numbers.
Why Should I Care?
A very famous economist once called his profession "the dismal science." While that nickname definitely makes the subject sound like a bit of a drag, the truth is that economics is only dismal because the world itself isn't perfect.
If everybody in the world could have everything they that they wanted, we wouldn't need to study economics. If there was a job for every person and enough gas for every car, if every nation had every resource in abundance and every person had the time and money to indulge even their most wild desires, we wouldn't need economics.
But we live in a different kind of world. A nation may have plenty of bauxite but not enough oil. Your state government may be able to finance education but not highway repairs. The local florist may be able to buy a new sign but not a new delivery truck. You may be able to afford a car but not health insurance. Even your very wealthy neighbor may have lots and lots of money but not very much time.
Economists study how we go about dealing with scarcity—how we as individuals and nations choose between one thing and another. If they want to do that at all scientifically, they have to keep track of how we are doing. They like to see if our individual choices are leading to economic growth and rising incomes for our families; zooming out to look at things more broadly, they also like to see if our collective choices are producing growth in the gross domestic product and a healthy distribution of national income.
Got it? Read on and you will. You might even discover how economics can be "dismal" and exciting all at the same time.