Economics

What is Economics?

Life is about choices. However, individuals, firms and governments cannot have everything they want; their desires are constrained by both time and resources, and therefore they must choose from a range of possible options.
Does an individual want more leisure time or a higher income? Does a government want to spend more money on hospitals or more on defence? Does a firm cut prices or advertise more to increase sales?

Economics studies the way in which these choices are made, and can inform policy in areas as diverse as education, the environment, commerce, transport, globalisation and health.
Economics is not just something that exists in textbooks. It’s all around us. Each one of us is an economic animal, hard-wired to make economic decisions. We do so instinctively, almost without thinking. Understanding why we do what we do is key to the economist’s role. It requires an appreciation of many related disciplines such as politics, mathematics, statistics, sociology and psychology. Blending these elements into a coherent and effective framework is what makes an economist that little bit special.

Sir John Hicks, a famous Nobel Laureate, once said that a good economist should be able to communicate economic thinking in words, diagrams and algebra. So an economist must be multi-talented. It’s not just about maths and, on the A level course, there is no mathematical knowledge needed beyond what you have acquired on the GCSE mathematics course. Whilst mathematics is one of the most powerful tools in the economist kit, there is no substitute for economic intuition. Developing that intuition takes time but once you begin to think like an economist, you’ll be able to communicate like one too – clearly, logically and imaginatively.

Economists see the world differently, through the lens of economics. For example, when asked “What’s the optimal level of pollution in your town or city?” a common response is to say “Zero, of course!” but an economist is likely to say that the level will depend on society’s preferences but the optimal level is NOT going to be zero. What the economist recognises is that pollution is a bi-product of almost all economic activity, the benefits from which society may be willing to offset against some pollution. That is the lens of Economics.