Introduction to economics

Maria and Michael are making plans for Saturday. They’re not short on ideas! Maria suggests going to the cinema and getting ice cream. Michael wants to do some gardening and build an obstacle course for his bunnies. Oh, but there’s a fair coming to town, too!

And Maria did promise she’d take Michael horse riding soon… You won’t be able to do all of this, you two! There aren’t enough hours in the day, plus your pocket money won’t cover all that. It looks like you’ll have to make a choice. Just like Maria and Michael, all of us have to make choices about how to spend our time and money. The list of humans’ needs and wants is endless, infinite.

But the things we need to fulfil those needs and wants aren’t. Time and money are limited and so are things like land, water, food, and building materials. People’s needs and wants are infinite, but the world’s resources are finite. This situation is called scarcity. Scarcity is the reason all of us must make choices about what we buy, how we spend our time, where we live, and more.

And this is where economics comes in. Economics is the study of how people make choices under conditions of scarcity and the results of those choices for society. It’s not just individuals that face choices because of scarcity, but businesses too… Take this tech company. It has a finite number of workers and money to spend, so it cannot make an endless supply of products. Should it produce more headphones, which are cheaper to make, or smartphones, which are in higher demand?

Or take this hairdressing business. It made a lot of money last year. Should the company pay its stylists more to keep them with the company, or use the money to open a second location? Businesses, just like individuals, must make choices and this is all part of economics too! More specifically, decisions made by individuals and businesses are part of microeconomics.

These decisions directly impact a small number of people. There is a second branch of economics that looks at decisions affecting large numbers of people – everyone within a country, for instance. This is macroeconomics. Macroeconomics looks at things like the goods and services produced by a whole country, or how a government could best spend its money. Macroeconomics asks questions like, what will happen if the government increases taxes?

Or, how does the economy of one country affect others? Whether it’s individuals, businesses, or governments doing the decision-making, economics is all about how limited resources are produced, shared out, and consumed. This is driven by human choices – and because of this, all of us are involved in the economy! Next time you face a decision – like whether to go to the movies or the fair – remember: it’s a question of economics!