The state of the economy is always a hot topic in the news, making a lot of terminology sound familiar. But is the average American clear on what those economic terms mean? And how they affect their own personal finances? Let’s breakdown the basics of economics.
What Are Economics?
The concept of economics is complex, but generally it refers to the study of people and businesses using financial resources.
Financial resources include time, workers, property, assets, equipment, buildings and other tools. These resources may also include knowledgeable people who can effectively use the available products and services.
How Does the Economy Affect My Daily Life?
Economics and politics together influence the level of taxes and the government’s role in stimulating the economy.
People use economics daily and may not even realize it. Economics allows an entire society to do business by analyzing what people, businesses, private corporations, governments and countries need and want. By using this data, others can produce goods and services to increase profits. In addition, individuals can learn to make wiser decisions to increase their livelihood, which in turn leads to a sense of well-being. An individual’s well-being may include the happiness they receive from the products and services they consume, the enjoyment of working a stress-free job, spending time with family and friends, and personal involvement in their community.
Here’s an example of how Americans may use the concept of economics in their daily lives. You might combine resources, such as time, money, assets and education to improve your well-being and overall satisfaction. This satisfaction comes from managing personal finance habits, such as saving money earned, spending less, buying necessary items and focusing on investment that earn profit over time.
So What Does an Economist Do?
The government uses economics to study labor, land, investments, money, income, production and taxes. Businesses hire economists, or people who measure well-being, and determine how it can increase over time.
Economists also look at the differences between wealthy and underprivileged Americans. Economists may also address how businesses, industries, governments and countries work together to stimulate well-being. They will look at the production factors of these functioning entities, including growth, costs and trade. Businesses use economics to determine what people will buy through supply and demand. Economics also includes the importance of competition and restrictions on monopolies. Similar to the board game, a monopoly means one business has outplayed their competition. This can have severe consequences for the country’s overall economic stability, because competition increases the options for consumers.
Understanding these basics of economics can show how businesses and consumers rely on each other to survive. In other words, businesses cannot hire employees without a consumer base to buy their products. If people do not have jobs, then they cannot consume and support businesses. This can spiral out of control if left unchecked.
Economists help predict future trends to deter this from happening in the future.