What Is Economics and How to Use It

                                What is economics and how to use it

1. Introduction

Most of people always regard economics as a subject studying the economy of a country, however, economics not only can be used to explain diverse subjects, such as education, consumption and politics, but also has a closely relationship with our everyday lives. The purpose of this essay is to discuss what economics is as an academic subject and the particular applications of economics in our daily lives.

1. What is economics

Many people believe that they are familiar with economics, but it is difficult for them to define this complex subject. Callahan（2002）explains that “The primary reason for this confusion is that economics is one of the youngest sciences known to man.” From time to time different economists have subscribed various definitions of economics. Generally, economics is the study of how societies utilize limited resources to produce valuable commodities and allocate them to different people. (Samuelson, 1948) And it is widely thought to be divided into two parts, microeconomics and macroeconomics. To be more specific, microeconomics primarily focuses on the interaction between buyers and sellers, and how prices and demand effect on the individual market. Compared with microeconomics, macroeconomics is concerned on the performance, structure, behavior, and decision making of an economy at aggregate level rather than a individual market (Gans et al , 2012).

Obviously, economics is a comprehensive subject, but we could have an insight of economics from some basic principles and elements.

Firstly, human have unlimited desires, but resources are limited. Thus how society manages the scarce resources is central to this subject. However, if this balance is disturbed, the market process will adapt the price to the new realities. For instance, if this year cattle infect with mad cow disease, the supply of milk will decline, and this change is out of price. Hence the supply curve would shift to left. As the picture shows above, the price of milk would be increased. When consumers purchase the equal quantity of milk, they should pay more money than before. So some customers prefer to chose other substitutions, such as soy milk, or goat’s milk.

Secondly, when making any decisions, the cost or the potential benefits of an alternative that have to be forgone in order to pursue a certain action is opportunity cost (Spiller, 2011). Based on limited resources, it is necessary to use the conception of opportunity cost to help us make the best decision in a reasonable and effective way.

Thirdly, as we known, taxation is also an essential element in economics. A mean by the government collecting money from its citizens according to their income and property. Meanwhile, there are a variety of taxes, most of which fall into a few basic categories, such as taxes on goods and services. Changing the price of tax has an impact on both buyers and sellers. For instance, Chinese government will impose tariff on online-oversea purchase from 8th April. When the tariff is introduced into the market, the selling price of the product would increase above the world price, and the product demand decreased while the supply increase. On this circumstance, the importer would become smaller. Therefore, on one hand, the government gains tax revenue from tariff, on the other hand, it would encourage domestic customers to accept domestic commodities.