Welcome to this lecture everybody. This is Mark Berkey. I'm a professor of economics at North Carolina A&T State University and this video I'm going to talk about what is economics just to give you a background and overview about what it is this subject is about. As is typical if you ask a hundred economists you you will get a hundred different answers let me talk about what some of the common perceptions are and I'll give you my two cents as well first let me tell you what economics isn't economics is not the study of money it is not the study of the stock market either a lot of times people think it's only about money it's only about stocks and bonds now as an economist certainly I have the tools I have the skills to go and talk about the stock market to study the stock market but the stock market is really the field of finance. And while economists do talk about money, it's a very small topic within what we talk about in economics.
Another thing I just have to mention is economics does study the economy, but that's also just part of what economics does. So let's talk about the broader picture. What is economics? Well, the teacher that I had that excited me about economics was Bert Bowden. And he wrote a textbook that I don't think is in print any longer, but he said that economics is the science of common sense.
And I love that description of economics. He always told us that probably half of what you need to know to be an economist you already know before you take the class, as long as you have good common sense skills. A more current textbook, McConnell, Brew, and Flynn, they say that economics examines how individuals, institutions, and society make choices.
under conditions of scarcity. Now that is a much more common textbook kind of definition of what economics is about. So let's dig deeper into this definition. The two words you need to focus on here when you think about economics is choices and scarcity.
First you have to understand what do we mean as economists when we use the word scarcity. You probably think of the word scarcity meaning rare, but that's not what we mean in economics when we use the term scarcity. In economics, what we're talking about is the idea that we assume humans have unlimited wants.
As economists, we don't talk about needs. We don't like that word. Just about everything boils down to do you want this or not?
How much do you want it? And how much of it do you want? Now there's this thing called Maslow's hierarchy of needs, where Maslow discusses things like shelter and love and food. as being things that humans need.
I would say that they're things that humans want. What kind of food are you talking about? Do you really need shelter? Well, shelter is great to have, but if you don't have it, you could survive without shelter, at least in some areas of the world.
And love? Well, yeah, we want love really badly, and love is a great thing to have, but what does it mean to need it? So, we stick with the idea of wants, and you may want something very, very, very much. But we just say that whatever it is, humans have unlimited wants. Take, for example, the richest person in the world, whoever that is.
It could be Bill Gates or it could be Carlos Slim of Mexico. However rich they are, if you offered them another billion dollars, would they take it? Absolutely.
Now, even if it is the case, like Bill Gates, he gives most of his money away to charity. Still, he wants to be the one that has the money and controls. where that money goes to charity so that he can feel better that it's being used in the right way so even if you're giving person you have unlimited wants so we have unlimited wants but we have limited resources with which to try to satisfy those desires that we have even if you have unlimited money you still have limited time even if you had unlimited time and unlimited money you still have a limited amount of space in your stomach with which to eat things so you have to make choices Because you have limited resources, you have to make choices about how to use your time, use your money, and use your energy. So normally we'll divide economics into two main branches. Microeconomics, micro meaning small, is the economics of small things.
It's the economics of individuals. So what kind of individuals do we study in microeconomics? Well, since we're focusing on the idea of choices, we focus on the choices of individual people. We focus on the choices of individual businesses.
Sometimes we'll call these firms, business firms. And the largest thing that we'll study in microeconomics, the economics of the small, Or, how do these choices of the first two groups work together to affect what's going on in an individual product market? For example, we might want to study what's going on in the gasoline market. Buyers and sellers form a market. Why is the price of gasoline going up or down?
And why are people buying more gas or buying less gas? So that's kind of the largest topic that we'll normally study in microeconomics is All the buyers and sellers, how are they interacting with their choices in one market? Or we could look at the textbook market. Why is it that textbooks for college courses are so expensive, so much more expensive than any other book that you would buy at a bookstore?
We could look at the market for professional athletes. What is it that determines how much a professional athlete makes? Are there certain rules?
laws in different countries that affect how much these professional athletes are paid. These are some of the interesting kinds of things that we would study in microeconomics, looking at a product market. But also, we look at just the choices of businesses and the choices of firms individually. So, for example, what are important choices that people make about the choices of whether to go to college or not, whether to drop out of college or not? whether to take drugs or drink alcohol these are choices that individuals make and there's choices that economists will study we also study things like the choice of who to marry whether to get married or not whether to have children how many children do you have how much energy do you put into raising your children do you send your children to private school or send them to public school these are all things that economists study what are the things that go into the choices of these individual people We also look at the choices of business firms.
For example, what kind of product does a business want to produce? How does that business produce it? Does it use a lot of machines or a lot of people? What price does a firm charge for this product? And how is this price determined depending on how many competitors this business person has?
What quantity of output does this business man or business woman want to produce? These are all choices that are important ones for businesses, and these are just some of the many, many topics that microeconomists study. Anything that deals with human choices, whether it's a person making a choice, whether it's a person in a business making a choice, whether it's a politician making a choice, these are all choices that we study in microeconomics. The other main branch of economics that we'll talk about is macroeconomics. So, macroeconomics is basically the overall result of these microeconomic choices.
How do they all add up to determine what's going on in the economy? So, anytime you think of the economy of a nation, this is a macroeconomic discussion. So, depending on how many people are working and what their skills are, whether they went to college to develop their skills, and the choices of all these business people.
Are they investing in bigger and better factories? Are they using a lot of people or are they developing the use of machinery? Are they inventing new, better ways of doing things? The result of adding up all those choices of all the people and businesses in an economy, that's basically macroeconomics, the economy.
How many people are working? How many businesses are producing? What would you want to know if you were looking at a whole economy of a nation?
What are some of the things that you would... want to keep track of, let me give you the big three ideas in macroeconomics. The big three things you want to keep your eyes on.
One is GDP, gross domestic product, is a measurement of what is the value of all the goods and services that were produced in a given year in a given country. And what we want to know is GDP going up, is it going down, and why. That's a topic of macroeconomics. The second big topic in macroeconomics is unemployment. It's basically what percentage of people in a country do not have a job where they're working for pay, but are looking, actively looking for a job.
so that they can make some money. That's what unemployment is. So that's something that you're very concerned with at the entire economy level.
Is unemployment going up? Is it going down? What's the relationship between unemployment and gross domestic product going up and down? And what are the kinds of things we can do?
What are the kinds of policies we can have in a nation to help GDP grow, to help unemployment go down? The third big topic in macroeconomics is inflation. Inflation is... is when prices are going up. Not just the price of one one thing or a few different things the overall average price of everything is going up and we want to understand what are the things that cause inflation is it good or bad and how can we deal with it so these are the big three topics in macroeconomics now I'm going to go back to looking at the idea of micro economics here for just a few more minutes to give you an idea about what do we mean by choices and how people can make choices And then we'll end this video before it gets too long.
How should people make choices? How do they make choices and how should they make choices? Well, we assume that people, whether they're a businessman, businesswoman, an individual person trying to make choices for their own people and their own household, or whether you're a government official, we assume that you should make choices by being what we call a rational maximizer.
So a rational maximizer is somebody who When they make a choice, they weigh the costs and the benefits of making a choice. How does that work? Well, this is where the science of common sense comes in.
If you look at any kind of scenario, going to class, going to a movie, going to a concert, buying a car, what you should do is you should somehow weigh the costs of doing that thing with the benefits of doing that thing. And if the costs are bigger than the benefits of doing it, what should you do? Don't do it. Very common sense idea. If the costs outweigh the benefits, if the costs are larger than the benefits, don't do it.
Whatever it is, buying a car, going to class, getting a job, if the costs are bigger than the benefits, don't do it. On the other hand, if the benefits are very large and the costs are very low, do it. Right? So this is very common sense approach. to talking about how people should make choices.
And really when you get down to it, most of what a microeconomics course boils down to is discussing what are the proper ways to measure costs and benefits in different situations. There are some costs you should ignore. There are other costs that are very important. And when you get into the details of microeconomics, we talk about for an individual consumer. How do they weigh costs and benefits?
For a business person, how do they weigh costs and benefits? And how should they weigh costs and benefits in different situations? And one last word about this idea of a rational maximizer.
Let me just tell you what that means. Rational just means that you're weighing costs and benefits. You're trying to make the right decision by weighing some sort of costs and benefits.
What are you maximizing? Maximize just means to make something as large as possible. We assume that if you are just an ordinary everyday person, that what you're going to try to maximize is your happiness. Make the decisions in your life that make you as happy as possible.
Whatever happiness means to you. We don't try to tell people what makes them happy. We want people to take into account whatever they think makes them happy. Happiness could be...
giving away all your worldly possessions and meditating. Happiness could be trying to make as much money as you can and buying as many cars as you can. Everyone's different. Make yourself happy by making the proper kinds of choices, weighing costs and benefits.
And it's a little more complicated than that, but that's the basic idea. You can be as happy as you can. You have to define what makes you happy and then make the right decisions.
If you're a business, We assume most of the time what you want to maximize is profit. Now this isn't always the case, and we have other situations where businesses are trying to maximize other things. But the basic premise is that most businesses are there to make more money than they spend. Thus they have a profit, and that's what they're trying to maximize.
So this is just a brief introduction. to the idea of what economics is and what economics is not, and I'll make some follow-up videos soon going into more detail about some of the different common fields that microeconomists study and then some of the common themes in what macroeconomic studies. So join me for those videos and as always, good luck in your economic studies everybody!