The Importance of Economics

Readers Question: What is the Importance of Economics?

This is a very open ended question. We could write anything between 20 words and a whole book.

I would suggest the main importance of economics is helping society decide the optimal allocation of our limited resources.

In particular economics is important in these areas.

How to manage the macro economy.

Economists can advise governments how to manage the economy and avoid inflation and unemployment. Both hyper inflation and mass unemployment can be devastating for society. Economists argue that both can be avoided through careful economic policies.

However, the problem is that economists may often disagree on the best solution to these problems. For example, at the start of the great depression in 1930, leading economists in the UK Treasury suggested that the UK needed to balance the budget. (This led to the fall of the Labour government as the Prime Minister Ramsay McDonald was one of the few Labour MPs who agreed to the economists suggestions to cut unemployment benefits and increase tax. ) As you might expect this Classical approach only made the great depression worse.

The Great Depression led to John Maynard Keynes developing his general theory of Employment, income and money, arguing that classical economics had the wrong approach for dealing with depressions. Keynes argued that the economy needed to expansionary fiscal policy.

Overcoming Market Failure.

Generally it is considered that free markets offer a better solution than a planned economy (Communist) However, free markets invariable lead to problems such as the over production of negative externalities (pollution) and underproduction of goods with positive externalties (education, health care, public transport). An economist can suggest policies to overcome these market failures.
Note: these policies are often politically unpopular and may not get implemented, but they show possible solutions to social problems. For example:

Another area where economists have a role to play is in improving efficiency. For example economists may suggest supply side policies to improve the efficiency of an economy.

Individual Economics.

Economics is also important for an individual. For example, every decision we take involves an opportunity cost - which is more valuable working overtime or having more leisure time?

Future Issues in Economics

Economics is constantly evolving. For example, in the future economic issues will involve:

Perma Link | By: T Pettinger | Tuesday, June 17, 2008
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Anonymous Anonymous said...

a big hand of appluse for the writer of da topic who made it so easy to understand and absorbant.

April 27, 2009 9:19 PM  
Anonymous lea said...

this helped me a lot in my school project.a bit problem is there a filipino version?haha!

June 10, 2009 6:11 AM  

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