Description: Economics graduate Maggie shares her insight on the main reasons why it is beneficial for students to study Economics.
Economics is formally defined as “the social science that studies the production, distribution, and consumption of goods and services.”
However, ask any economist and I guarantee they’d all say something different.
At its core, economics allows us to understand the world around us.
Thus enabling us to understand how people, businesses, markets and even governments allocate resources and make decisions.
Main Factors
Whilst many people first think of money and finance, it is a much broader discipline than that.
It helps us understand historical trends, interpret headlines, and make predictions about the future.
Economists study factors and trends that vary from the very small to the very large.
In other words, we have the study individual decisions. Such as why people decide to spend versus save money.
This is called microeconomics.
As well as the study of the economy as a whole, such as unemployment rates, called macroeconomics.
How it Helps
However, the laws of economics play a role in all of our everyday lives, without many of us even realising.
Learning about economic concepts can help you to understand the news, make financial decisions, and see the world in a new way.
The more you look, the more you’ll see how Economics can help.
Incentives
An incentive is simply a way to get people to do more of a good thing and less of a bad thing.
But most incentives don’t come about by themselves.
Someone has to invent them, whether that’s a parent, a politician, or in fact, an economist.
A child eats all her vegetables. They might get to watch an hour of TV after dinner.
A corporation spill oil into a water system. The company is fined hugely for each barrel of oil discharged.
Too many people are dying or getting ill as a result of cigarettes? Tax them.
As of 2020, the tax rate applied to a packet of cigarettes in the UK was £244.78 per 1,000 cigarettes plus 16.5% of the retail price.
In other words, someone smoking three packets of cigarettes per week will now be paying over £1,000 per year in tax.
Many economic studies look at how people respond to incentives.
From this, we can learn how to implement more efficient and effective policies throughout the economy.
Sources: Day Centres in Israel
In Haifa, the third-largest city in Israel, daycare centres close at 4 pm. Daycare workers rely on parents to pick up their children on time.
This was relatively successful as parents picked up their children largely on time and rarely came after 4:30 pm.
Why were parents rarely late? Being late meant relying on the generosity of one teacher to watch the child.
But, what would happen if these daycare centres stopped relying on generosity and started using financial incentives?
Two economists, Uri Gneezy and Aldo Rustichini, delved deeper into this issue to see whether they could eradicate parents turning up late through a financial incentive.
This experiment lead to an interesting, and unexpected, result: introducing a financial penalty for showing up late actually caused parents to do just that.
Parents stopped showing up on time entirely.
What about the other daycare centres that didn’t introduce a fine? Nothing changed at all.
The authors concluded that parents must have a set of non-financial incentives for being on time.
Incentives that were completely void once money was brought into the picture.
As soon as parents had the option to pay a small fine, they felt like it negated any guilt that they have had for turning up late because now they felt like they were just paying fairly for extra service, and so they took it.
What this tells us is that even the smallest of things, such as people running late, can be understood, and therefore prevented or encouraged, through the laws of economics.
By Economics tutor Maggie.