The Utter Simplicity of Economics

Let's start with a definition, shall we...

DEFINITION OF ECONOMICS --  The study of the allocation of scare resources to the marketplace that have multiple uses...  In so doing, we can look at production, distribution, consumption, and wealth transfer.

But, let focus on a few KEY WORDS...

Study  --   this is nothing more that collecting and analyzing data that pertains to the production, distribution, consumption, and wealth transfer regarding these scare resources.

Allocation  --  is nothing more that looking at what item(s) go to what person or people and why.

Scarce Resources  --  resources are always considered to be in scarce supply because no matter how fast or quickly we transport the resources to the marketplace, we simply cannot get them there all at one time.

Multiple Uses  --  a resource is said to have multiple uses if it can be used for more than one thing like:  eggs, flour, circuit breakers, rubber, petroleum oil, wood/lumber, glass, etc.

Supply and Demand dictate the price of a resource.  For example, supplier want more money if they produce more products because it takes more raw materials and labor to produce those products.  The line that we would draw would be like connecting the left bottom corner of a square to the top right corner of that same square...

This line is called the Supply Line.

Consumers, on the other hand, want to pay less for a product if they are willing to purchase several of them at one time.  This line would be like connecting the bottom right corner of that same square to the upper left corner.

As you can see, we have just draw a BIG "X" in that box.

Where those two lines intersect, is the ideal price for that particular item.  Supply and Demand lines can reflect one item at a time like Ford Escorts 1999 or multiple items at a time that the selling of all vehicles regardless of make and model and year.

So, people who study the economy and the allocation of our scarce resources are looking at all the factors that influence production, all the factors that influence distribution, all the factors that influence consumption, and all the factors that influence how money changes hands or wealth transfer in order to predict what the economy might do in the next 3 months or the next 6 months or for the next year.

Predicting what the economy may or may not do helps businesses decide if they should expand and hire more people or not expand and possibly layoff people.  The reason that company are faced with these types of decisions is that most of our companies sell stock and those people who purchased that stock (Shareholders or Stockholders) did so with the promise of receiving a substantial dividend every 90 days.  If the company fails to honor their promise to the Shareholders then the CEO of that company could possibly find himself or herself on the unemployment line.

There are two basic areas of Economics:  MICRO (small) and MACRO (large) and basically can be explained like this:

• looking at the individual is MICRO
• looking at the family is MACRO
• looking at the family is MICRO
• looking at the community is MACRO
  
• looking at the community is MICRO
• looking at the city is MACRO
• looking at the city is MICRO
• looking at the region is MACRO
• looking at the region is MICRO
• looking at the State is MACRO
• looking at the State is MICRO
• looking at the USA is MACRO
• looking at the USA is MICRO
• looking at the world is MACRO

If prices of a particular item increase too high, then the consumer will find a substitute until the price returns to that point where they feel it is a good buy once again.

Sometimes, those who study economics CANNOT predict what they consumer is going to do at any given point-in-time which is why predictions and forecasts do not always work out.  Think of it this way...  In 2015 all the polls were reporting based upon data collected that Trump was going to lose the election.