Economics and You

by: Jean Paolo G. Lacap

Economics has been perceived by many as a subject matter for the elites. It is something that only intellectual people understand. It is considered as the language of the educated people and cannot be comprehended by the populace. For students, especially in the college/university level, it is often associated as a course full of numbers, equations, graphs, and variables! In short it is hated by many.

Many people fail to understand that economics is very essential to everybody. Economics is a field of discourse that every individual should appreciate and fathom. It is true that economics utilizes equations, graphs, and mathematical elements but it can be easily learned if it will be discussed in a much simpler and clearer way or in a manner where everyone can straightforwardly grasp its fundamental principles and concepts.

Opportunity Cost and Marginal Analysis

Your everyday routines entail economics. In choosing whether you will wake up early or wake up late involves economics. If you decided to wake up late, you lose the opportunity of waking up early and accomplish early chores. In economics, this is called opportunity cost or the condition wherein you need to give up or sacrifice an alternative action in order to pursue another. It means, you traded off/sacrificed the opportunity of waking up early and do your early tasks to waking up late. Your day-to-day activities implicate economic decisions. The simple decision of studying an extra hour for an exam entails marginal analysis. Marginal analysis is an economic concept that involves weighing the marginal (or additional) benefits and marginal costs of a decision. If for instance you decided to study an extra hour for an exam, the marginal (additional) benefit of the decision would be higher probability of getting or passing the exam. On one hand, the marginal cost of the decisions is, you need to sacrifice an hour to study your lessons! So instead of doing something else, you need to channel all your energies and efforts in reviewing your lessons! Using marginal analysis, you will be able to identify whether it is beneficial for you to pursue the decision (in the example, it is studying an extra hour) or it would be much better for you to do something else.

Inflation and Purchasing Power

The different economic, political, and social events and news in the country affect your lives directly and indirectly, both in micro and macro levels. For instance, when inflation rate, or the degree of increase of the general level of prices, goes up, your purchasing power decreases. In simple terms, if your 100 pesos today can buy 10 units of goods today, tomorrow, if prices will increase, other things being equal, your 100 pesos can buy less than 10 units. In a nutshell, every time prices are going up, your capacity to buy decreases.

GDP

On the macro level, economic indicators such as GDP (gross domestic product) growth rate can affect the living standards of the people in positive way. GDP refers to the aggregate (total) income, expenditure, or production of one country in a specified time frame. It reflects the overall health of the country’s economy.  If there will be successive or continuous increases in the level of GDP, economic development will take place where institutional changes will happen such as higher level of living standards, higher employment rate, and so on. Take note, the emphasis is on continuous growth which means an incremental increase in the GDP growth rate for a year for example does not necessarily constitute that the lives of the people will certainly change immediately or drastically! In order for a nation to achieve economic development, sustained GDP growth is necessary. Of course, a healthy economy will always be preferred than a sick one!

In the final analysis, understanding economics is necessary for us consumers (and even business people and the government) to make sound decisions. Understanding economics makes us all informed members of the economy. Examining the different economic, political, and social issues require everyone to utilize and apply economic concepts and principles. Thus economics should be treated as an everyday companion and a tool to our everyday decision!