Lesson 0 - What Economics truly is and why we need it


Let's introduce ourselves first.  Hi, I’m aleulinux and within this blog I’m going to help you gather all the basic (and advanced) information to understand Economics. If you're worried that this is going to be too hard don't be! I'm going to start from the beginning and explain everything step by step in order to guide you through this epic "Odyssey" of weird but well-known concepts like: inflation, interest rates, investments, GDP, demand, supply etc.

The amount of information that you’re going to get it’s basically enough for an entire university class (a cheap one), so in order to make it easier I’m going to ELI5 whenever is needed. This first Lesson is going to be more an introduction. I suggest you to read it but if you want to skip it, no problem!

In parallel with this "class" I'm going to define in another blog of mine the various financial assets. Combining info, you should get everything to truly understand how to reach your financial freedom.

So, let’s get it started!

 

 

First of all, what is Economics?

That’s hard to answer actually because there are several definitions of Economics, however my favorite (and wide-spread) definition is:

Economics is a social science that studies how societies use scarce resources in order to efficiently produce goods and/or services yielding utility, and how such goods/services are distributed.

These words used to describe Economics are perfect in my opinion because they immediately put us in front of three keywords that actually answer to the question: why do we study Economics in the first place?

These keywords are:

  • Utility: In Economics this term is used as a synonymous of satisfaction. No-one would ever buy/produce something that nobody likes or can use.
  • Scarce resources: Unfortunately, the world has limited resources that not only are really hard to harvest, mine etc. but most of the time they’re impossible to replenish.
  • Efficiency: You can correlate this concept with the concept of waste: Resources are limited so It is imperative to avoid wastes.

Basically, we live in a world where nothing is for granted, everything has to be earnt, nothing is infinitive, people struggle to survive and Economists fight, “metaphorically”, to find a way to deal with everyday problems but in a macro-scale. That’s it, this is the reason why Economics exists, to find tools and solutions to very serious problems.

Of course, implementing such ideas is Governments’ job, and I’m not going to argue if they’re good at this or not.

Every single society, from the most advanced to a completely isolated tribe, has to solve three fundamental economic problems. It has to set what? how? and for who? produce, because as we said, resources are scarce and therefore a society needs to choose among thousands of goods and services.

Usually what and who, especially in advanced societies, have super straightforward answers:

  • What: production shifts towards what people want (people literally “vote” using money, higher the demand for a certain product, higher its production), meanwhile…
  • We can answer to who saying “whoever can afford it”. Wealth is the key.
  • How is the hard part. We have scarce resources and we need to use them efficiently. How do we supply power? Oil, wind, coal, sun rays? This line of works is going to be fully automated or we need workforce? Is it really worth it to destroy entire mountains just to find a little gold?

Countries are literally limited by their natural resources and by technology. Technology is maybe the most impactful component of Economics. Usually, the country with better technology always wins in the long run. To properly answer the previous questions, every society has to make some decisions in regard inputs and outputs of the economic system. We define as Input all the resources used by producers to “build” a product, and we define output the final product or service delivered.

Those products or services are then exchanged within places (not strictly physical ones) known as markets, where buyers and sellers meet in order to satisfy their needs.

As an introduction that’s it! In the next true lesson, we are going to define what demand is, what supply truly is and the concept of elasticity. I hope this wasn’t too boring. See you next week!

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aleulinux
aleulinux

Avid reader, lover of the fantastic, the unknown and finance (yes, really); I make people happy by making them eat... that's it for now. I would like to become one of the best Economics/Finance teacher around, but nowadays, i am a student myself =)


Personal finance - How Economics works
Personal finance - How Economics works

An overall journey inside the world of Economics in order to understand how the "system" truly works, and what forces shape our life. This blog will be an Economics class feasible for everyone. So enjoy!!

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