I have previously written about The Importance of Economics. It is one of those posts where there are an almost infinite number of topics to consider. This post will consider the importance of economics in our daily lives.
We are constantly faced with choices. It may be a matter of limited time. For example, at the weekend
- We could spend 8 hours working in a cafe at the Minimum Wage of £3.57.
- Or we could spend 8 hours studying for our A – Levels.
- Alternatively, we could choose to spend 8 hours of leisure (sleeping in, facebook e.t.c.)
Each choice has an opportunity cost. The opportunity cost of earning 8*£3.57 £28.56 is that we don’t have time to study. This could lead to a lower Exam results, which could lead to lower future earning potential. Choosing to maximise our income in the short term (earning £30 a day) may reduce our lifetime earnings and could be a poor decision -unless working in a cafe doesn’t affect our future earnings. We may feel job experience more useful than an essay on allocative efficiency.
The problem is that when making decisions about whether to study, work or pursue leisure, we may forget or ignore long term effects. Deciding to spend all our free time earning £3.57 is something we may regret later in life. Economists suggest education is a merit good – meaning people may underestimate the benefits of studying. Underconsumption of education is an example of market failure.
Considering opportunity cost can help us make better decisions. If we act on instinct, we may choose the most pleasurable or easiest course of action, but the best decision in the short term may not be best in long term.
Importance of Macro Economy on Our Daily Lives
When making decisions we don’t tend to first look at leading economic indicators. But, perceptions about the economic outlook can influence certain decisions. For example, those aware of the current economic situation may be aware the depth of the recession which makes a period of low interest rates more likely. This suggests that if you could get a mortgage, mortgage payments would be cheaper, but, saving would give a poor return.
However, the bad state of the economy and high unemployment rate is a factor that may encourage students to stay on and study. Since youth unemployment is currently very high, it makes more sense to spend three years getting a degree rather than going straight on to the job market.
The only problem is that many other students are thinking the same. Hence the competition for university places is becoming much stronger. Another motivation to spend more time studying and less time working at Little Chef….