Key Concepts for Studying Economics

WendyMay

Member
Well, I made it to the end of chapter one of my economics textbook. By the way, if I haven't mentioned it before, it's called Principles of Economics. It's a really great book and I've already learned a lot from it. I enjoy reading what it has to say and then turning things into my own words to share here. This strategy helps me learn. If I were to simply read through the book with no writing afterward, I'd probably not retain very much. It's the fact that I repeat and translate that makes the concepts stick.

So what have I learned so far? Well, economics has to do with scarcity. It studies what's abundant in this world and what's not. Those who study economics seek to solve the problems that scarcity causes. One major method for dealing with scarcity is to employ something called the division of labor. Basically, when someone specializes in one or a few tasks as opposed to many, they're able to use their talents, learn, and become more efficient at that task, rather than remain inefficient at too many tasks. When someone is able to focus on just one (or a few) task(s) and get paid for it, they're able to use that income to purchase what others have produced. When everyone does this, it's called a market. When people divide their labor and specialize, it allows for a few different things to occur: individuals can focus on what they're good at, individuals can completely learn about a given task and find ways to do it better, a system of individuals can take advantage of something called economies of scale. And finally, by learning about economics, I'm able to become a better, more well rounded individual. One who understands the intricacies of the world and one who thinks more clearly and in a more level-headed way.

At the end of chapter one, there are some questions to answer. I thought I'd do that here.

Chapter One Questions

1. What is scarcity? Can you think of two causes of scarcity?

Scarcity is when wants and desires outweigh production or available supply. There are many reasons for scarcity. Lack of natural resources, laziness, inability to produce, inefficient production, lack of human capital. Whatever the reason for the scarcity, the fact remains that a resource or resources are limited. On the flip side, even when resources are abundant, it appears that demand rarely wanes. So to answer the question, the two reasons for scarcity are lack of resources and inherent demand.

2. Residents of the town of Smithfield like to consume hams, but each ham requires 10 people to produce it and takes a month. If the town has a total of 100 people, what is the maximum amount of ham the residents can consume in a month?

If there are 100 people in the town and it takes 10 people to produce one ham, it would take 100 people to produce 10 hams in one month. Since the demand for the hams is consistent and limited only by supply, the residents' consumption is limited by the production of the 10 hams. That's all they can eat per month. In order to increase this number, they would need to increase the human capital of their town or find a more efficient method for making the hams.

3. A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables?

If this consultant is already making $200 per hour, it's assumed that she's good at her job and that there is a demand for it. Growing vegetables is time consuming. Certain skills are also needed. Vegetables don't cost that much money to buy, so it would be in the best interest of the consultant to work at her consulting job to earn the money to purchase the vegetables. By her attempting to grow her own vegetables, she'd lose out on opportunity cost from her consulting job. And there's no guarantee of success while growing her own vegetables either, which would end up being a total waste.

4. A computer systems engineer could paint his house, but it makes more sense for him to hire a painter to do it. Explain why.

Same answer as above. If the computer systems engineer can make more money by doing his primary job, then it would make more sense to hire someone to paint his house. Unless, of course, the painter is charging a fortune, or more than the computer engineer earns at his job. In that case, he should paint his own house. But this second answer goes against the question. In it, it was stated that it makes more sense for him to hire..., so I'll stick with my first answer.

5. Give the three reasons that explain why the division of labor increases an economy’s level of production.

For complete answer, look here. The three reasons are comparative advantage, core competency, and economies of scale.

6. What are three reasons to study economics?

For complete answer, look here. The three reasons to study economics is to understand the economic dimensions of world problems, to understand budgets, regulations, and laws and to vote with the best interests of the general welfare in mind, and to become a well rounded thinker.
 
Key Concepts for Studying Economics was posted on 08-30-2020 by WendyMay in the Economics Forum.
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