A layman in the realm of Economics

As a newcomer in the realm of study of Economics, at the beginning this scribe felt a bit perplexed. Let him explain what he means. During the first lesson of Economics, he found this study a bit odd compared to the traditional science subjects such as Physics, Chemistry and Biology, which he was taught at the university. To study those subjects, he had to rely on certain universal principles known as fundamental laws, which cannot be changed, if one wishes to. However, in Economics, this scribe has come to the conclusion that Economics deals with choices and actions, more precisely, the consequences of actions. Unlike other physical science subjects, it does not direct or guide him to take a certain course of action based on predefined rules. Rather, through the study of it, it gives an enlightened view of the consequences of his actions so that he can choose whichever action has value and preference to him. It seems to him that he has, at least, the freedom of going by his own choices. However, as he has limited resources such as time and money, he would feel an urge to maximise the benefits he gets from spending those resources. His aspiration from the study of Economics is that it will give him insights into exactly how he needs to manage those scarce resources efficiently to maximise those particular benefits he desires. Irrespective of its large number of definitions (i.e. originated from different views), one of them seems to have relevance to him, and that is, Economics means the study of managing scarce resources efficiently for the benefits of an individual, society or country concerned.

During the very first lesson of Economics, he came to know about a fundamental concept known as scarcity, and how scarcity drives the allocation of limited resources. Scarcity originates due to limited resources we have, and it is the scarcity for which we face trade-offs in our everyday decision-making. Facing those trade-offs was so frequent and natural to this scribe that he hardly realised the connections between those facts to scarcity in his daily life. For example, he prefers to wake up late in the morning. However, the reality is he has to get up early to catch the bus on the way to work. Otherwise, he could not make his living due to the limited working hours he has during the day. Another dilemma he faces, when it comes to his lunch time at work. Although, he prefers to go to a posh restaurant for having a delicious lunch, but, due to the limited money he can afford, he has to bring his own lunch prepared at home. Through consciously reviewing his decisions and actions as a rational human being, he learns to appreciate the concept of scarcity and its implications not only from his perspective but from the society's or country's point of view.

Having said that scarcity drives the allocation of his limited resources and thus he faces tradeoffs in his everyday decision-making, another question immediately comes to his mind-how does his brain pick the preferred things among sometimes many different alternatives? How can he be sure the choice he makes today will give him more value in terms of cost and benefits in the future, and also is there any particular formula to compare different alternative choices beforehand? Because not all things he desires have price tagged on them so he can know the exact cost of their alternatives, rather some of them have costs which cannot be determined because of their less-visible nature. Nevertheless, it surprises him that Economics as a theory of consequences of our choices shed lights on this issue. In his current study of Economics, he comes to know a rather simple concept-the opportunity cost- this is the cost of the best alternative item he gives up to get the most desired item, and not surprisingly, evaluation of this cost is subjective. For instance, recently he received an offer letter to join a reputable university overseas as an academic, however, as he works part-time, has close ties and now doing this postgraduate course, the concept of opportunity cost certainly helps him review his possible course of actions, and he is now carefully planning the best alternative he can take to maximise his career outcomes.

Although considering the opportunity cost influences his decisions, he thinks he is driven by another economic concept called 'respond to incentives' in his daily economic activities such as purchasing milk, bread, and butter at superstores. When he approaches a particular product on display at superstores, he often finds himself buying more of an item if there is a price reduction going on. He thinks this is the incentive which motivates him to purchase more and this explains why he takes two bottles of Coke instead of one (which he did before discount). Another thing he notices when purchasing any discounted product. By seeing that price, he feels more satisfied when making that purchase. Where does this extra satisfaction come from? He has been struggling to find an answer to that question for a long time. However, when he learns about consumer surplus (the difference between buyer's willingness to pay and market price) in this journey, the origin of this gratification becomes apparent to him. Another thing he was wondering about is: if buyers like him have many different choices, then why are there an adequate number of items always present in the market, and also why do buyers like him never return empty-handed without finding the right product from the market? How did the market know he would come to buy that product? And what ensures that sellers will find the right number of buyers to sell their goods and do not have to dump their products? After reading the concept of free market equilibrium (where the quantity of a particular product demanded and supplied is the same), he can see the power of Adam Smith's invisible hand-the price on controlling the interactions between a buyer and a seller to ensure efficient market outcomes.

As Economics deals with the consequences of human actions and the associated plans, the subject matter is vast due to a large number of economic activities we undertake as an individual, society or a country as a whole. However, in a narrow sense, we use Economics to better understand how to maximise the benefits from the society's scarce resources. However, several concepts of Economics are vital to understanding and applications of this scientific discipline. The appreciation and applications of central concepts of Economics learnt so far such as scarcity, opportunity cost, incentives, consumer surplus, market equilibrium and so on are described from this scribe's personal viewpoints. These basic concepts of Economics have already enabled him to make his right economic decisions. Surely many more fascinating concepts of Economics are to come in future.

Dr Abdullah Masum is a research scientist at Monash University, Melbourne, Australia.

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