What is economics and what do economists do?

Summary

In this introduction to economics, Dr. Pete Schuhmann explains economics as the study of dealing with scarcity and distributing resources. He differentiates between macroeconomics, focusing on national and international economies, and microeconomics, examining individual and firm decisions. Key concepts like opportunity cost and thinking at the margin are highlighted, emphasizing the use of math, statistics, and data in economic analysis. The video also touches on the broad applications of economics, the diversity of economist roles, and the importance of objectivity and critical thinking in the field.

Takeaways

• 📚 Economics is defined as the study of how people, businesses, societies, or nations deal with scarcity and distribute resources.
• 🌳 There are two main branches of economics: macroeconomics, which studies the economy at a national and international level, and microeconomics, which focuses on individual and firm-level decision-making.
• 🔍 Economists use concepts like opportunity cost to understand trade-offs and decision-making, often thinking 'at the margin' to consider incremental changes.
• 👥 Key figures in economic thought include Alfred Marshall, known for the supply and demand model, Adam Smith, who explored rational self-interest, and Milton Friedman, an advocate for free markets.
• 🔄 The circular flow model illustrates the exchange between households and businesses, with labor provided for income and wages, and goods and services exchanged for payments.
• 🌐 Economists expand their analysis to include natural systems and environmental considerations, recognizing the interplay between economic activities and the environment.
• 📊 Economists employ tools such as mathematics, statistics, and data analysis to study economic phenomena and provide useful information to decision-makers.
• 🔮 Economics involves a 'what if' approach, examining cause and effect, and assessing the costs and benefits of actions or inactions to solve problems.
• 🔬 The discipline strives for objectivity, with economists acting as analysts rather than advocates, using theory, data, and empirical results to draw conclusions.
• ⚖️ While economics shares similarities with science, it is considered inexact due to the complexity and lack of controlled experiments in economic systems.
• 🌟 Economics is a broad field with numerous sub-disciplines, ranging from environmental and ecological economics to health, education, and labor economics.

Q & A

What is the definition of economics as presented by Dr. Pete Schuhmann?

Economics is defined as the study of how people, businesses, societies, or nations deal with scarcity and distribute scarce resources.

What are the two broad branches of economics mentioned in the script?

The two broad branches of economics are macroeconomics and microeconomics.

What does macroeconomics focus on according to the script?

Macroeconomics focuses on the study of the entire economy at the national and international level.

What is the primary focus of microeconomics as described in the script?

Microeconomics looks at individual and firm level decision making and dynamics.

What key concepts do economists use to understand trade-offs and decision making?

Economists use key concepts like opportunity cost to understand trade-offs and decision making.

What does the term 'thinking at the margin' refer to in the context of economics?

In economics, 'thinking at the margin' refers to considering the incremental costs and benefits of a decision rather than absolute changes.

How do economists study economic issues as per the script?

Economists study economic issues using math, statistics, data, reasoning, and a variety of tools to provide useful information to decision-makers.

What is the circular flow model described in the script?

The circular flow model is a picture that shows households providing labor to businesses in exchange for incomes and wages, and businesses providing goods and services that households pay for with money.

What is the role of incentives in the economy as discussed in the script?

In the economy, incentives play a crucial role as they motivate workers to do good work for higher pay and businesses to provide quality products at low costs to earn profits.

What does the script suggest about the objectivity of economics?

The script suggests that economics is supposed to be objective, with economists acting as analysts rather than advocates, aiming for a 'cold-hearted search for the truth'.

How does the script describe the nature of economics as a science?

The script describes economics as an inexact science because, unlike some physical sciences, it doesn't have controlled experiments and has to deal with messy real-world data.

What are some of the fields within economics mentioned in the script?

Some fields within economics mentioned in the script include environmental and ecological economics, health, education, industrial organization, regional, labor, and demographics.

Outlines

00:00

📚 Introduction to Economics

Dr. Pete Schuhmann introduces the discipline of economics, defining it as the study of how people deal with scarcity and distribute resources. He outlines the two main branches: macroeconomics, which examines the economy at a national and international level, and microeconomics, focusing on individual and firm-level decision-making. Key economic concepts such as opportunity cost and thinking at the margin are introduced. The video also touches on the use of tools like mathematics, statistics, and data in economic analysis, aiming to provide useful information to decision-makers. The objective nature of economics is discussed, with an emphasis on analysis rather than advocacy.

05:02

🌐 The Scope and Study of Economics

This section delves into the broad scope of economics, covering anything involving decision-making, trade-offs, or choices. It references the Journal of Economic Literature Classification to illustrate the wide range of topics within economics. The discussion contrasts macroeconomics, which studies the economy as a whole, with microeconomics, which examines individual interactions. The paragraph also addresses the skills economists use, such as critical thinking, math, statistics, data analysis, and communication. It mentions the various sectors where economists are employed, including government, private sector, NGOs, and academia. The paragraph concludes with a note on the necessity of graduate training for becoming an economist and the diverse career opportunities for economics graduates.

10:02

🤔 Consensus and Disagreements Among Economists

The final paragraph discusses the consensus and disagreements among economists. While there is no unanimity on all aspects of economics due to its complexity and the presence of uncertainty and ambiguity, there are several areas of agreement. These include the goal of public policy to improve public well-being, the responsiveness of people to incentives, the benefits of voluntary transactions, and the importance of cost-benefit analysis. The paragraph emphasizes the importance of understanding opportunity cost and thinking at the margin as fundamental concepts in economics. It also highlights the scarcity of all resources, which underpins the necessity for economic decision-making.

Keywords

💡Economics

Economics is defined in the script as the study of how people, businesses, societies, or nations deal with scarcity. It is central to the video's theme as it sets the stage for understanding the broader issues that economists address. The script mentions that economics involves the distribution of scarce resources, which is a fundamental economic problem that the discipline seeks to understand and solve.

💡Scarcity

Scarcity refers to the limited availability of resources in relation to the unlimited wants and needs of society. This concept is crucial in the video as it underpins the necessity for economic study. The script explains that economics is about how to deal with scarcity, which is a universal condition that affects all economic decisions and actions.

💡Macroeconomics

Macroeconomics is one of the two broad branches of economics mentioned in the script. It focuses on the study of the entire economy at the national and international level. The video explains that macroeconomists are concerned with forecasting and analyzing economic variables such as GDP, inflation, and unemployment rates. This branch is integral to understanding the big-picture economic trends and policies.

💡Microeconomics

Microeconomics, the counterpart to macroeconomics, is concerned with individual and firm-level decision-making and dynamics. The script uses the analogy of a forest to illustrate that while macroeconomists fly over the forest for a broad view, microeconomists walk through it, examining the interactions between individual trees. This concept is key to understanding consumer behavior, market structures, and pricing strategies.

💡Opportunity Cost

Opportunity cost is a central economic concept explained in the script as the cost of the next best alternative that is foregone when making a decision. It is highlighted as one of the most important concepts for students to grasp, as it illustrates the trade-offs inherent in economic decisions. The script uses the phrase 'There is no such thing as a free lunch' (TINSTAAFL) to convey the idea that every choice involves giving up something else.

💡Marginal Thinking

Marginal thinking, as discussed in the script, involves considering the incremental effects of decisions or changes. It is a key concept in economics because it allows for a more nuanced understanding of how small changes can impact outcomes. The script emphasizes the importance of thinking at the margin, which is a method economists use to analyze decisions and their consequences.

💡Circular Flow

The circular flow is a model presented in the script that describes the movement of resources between households and businesses. It illustrates how households provide labor and receive income, while businesses produce goods and services that households purchase. This model is fundamental to understanding the basic workings of an economy and the interdependence of its parts.

💡Incentives

Incentives are mentioned in the script as the motivations that drive economic behavior. Workers are motivated to perform well to earn higher wages, and businesses are motivated to produce quality products at low costs to earn profits. Understanding incentives is crucial for economists as it helps explain why individuals and firms act the way they do in the economy.

💡Economic Models

Economic models are simplified representations of economic relationships used to analyze and predict economic phenomena. The script refers to models like the supply and demand model, which is a fundamental tool in economics for understanding how prices are determined in a market. Models are essential in the script as they provide a framework for economists to study and make predictions about economic behavior.

💡Economic Policy

Economic policy is discussed in the script as the set of actions taken by governments to influence economic outcomes. It is related to the video's theme as it highlights the practical application of economic theories and principles. The script suggests that economists aim to provide useful information to decision-makers, which often involves advising on or evaluating economic policies.

💡Economic Science

The script explores whether economics is a science, referencing Karl Popper's concept of falsifiability. It acknowledges the challenges in treating economics as a hard science due to the lack of controlled experiments and the complexity of economic systems. This discussion is important as it addresses the methodological approaches and the scientific nature of economic study.

Highlights

Economics is defined as the study of how people deal with scarcity and distribute scarce resources.

Economics has two broad branches: macroeconomics and microeconomics.

Macroeconomics focuses on the study of the entire economy at the national and international level.

Microeconomics examines individual and firm level decision-making and dynamics.

Economists use concepts like opportunity cost to understand trade-offs and decision-making.

Economic questions often arise by thinking at the margin.

Key figures in economics include Alfred Marshall, Adam Smith, and Milton Friedman.

The circular flow model illustrates the exchange between households and businesses in an economy.

Economists study how incentives motivate workers and businesses.

Economics can be expanded to include natural systems and environmental considerations.

Economists use math, statistics, data, and reasoning to study economic issues.

Economics aims to provide useful information to decision-makers and solve problems.

Economics is considered an objective discipline, aiming for a 'cold-hearted search for the truth'.

Economists often debate whether economics is a science due to the lack of controlled experiments.

Economists study anything involving decision-making, trade-offs, or choices.

The field of economics is broad, covering a wide range of topics.

Macroeconomists focus on forecasting and broad economic variables.

Microeconomists look at individual interactions within the economy.

Economists use critical thinking, math, statistics, data analysis, and communication skills.

Economists work in various sectors including government, private sector, NGOs, and academia.

Economics provides a broad skill set that can lead to diverse career opportunities.

Economists do not agree on everything, but they generally agree on the importance of public policy, incentives, and voluntary transactions.

Key concepts in economics include understanding opportunity cost and thinking at the margin.

Transcripts

♪ Music ♪

In this short introduction to the discipline of economics,

Dr. Pete Schuhmann presents an overview of the

fundamental issues of interest to economists and

how they study those issues.

He defines economics as the study of how people

deal with scarcity and distribute scarce resources.

He highlights the two broad branches of economics -

macro and micro - and explains that macroeconomics

focuses on the study of the entire economy at the

national and international level while microeconomics looks at

individual and firm level decision making and dynamics.

He notes that economists use key concepts like opportunity

cost to understand trade-offs and decision making

and that questions of interest for economists arise by

thinking at the margin.

I have been given the task of talking about

what is economics and what do economists do.

ECON 101, the first five minutes of ECON 101.

So there's the ECON 101 definition -

economics is the study of how people, businesses,

societies, or nations deal with scarcity.

There's lots of definitions of economics.

If you ask ten different economists what they do,

they'd give you ten different answers, so my

my favorite definition of economics is economics is what

economists do and if we go back to the first slide,

you'll see that I'm pretty much done.

So I'll open it up for questions, no I'm just kidding.

What do economists do?

We study how people deal with scarcity,

how we distribute resources.

Who are these characters here?

All the way on the left, that's Alfred Marshall,

he's sort of the father of the supply and demand model,

the market model, he wrote in the late 1800s;

the guy in the middle that's Adam Smith late 1700s,

he looked at rational self-interest and how

rational self-interest sort of promotes social well -

interests under a certain set of conditions;

and who's that guy on the right?

Milton Friedman, yes Milton Friedman,

perhaps the 20th century's most vocal

advocate for free markets.

In the first day of econ or the second day of econ,

most econ students are presented with a picture

that looks like this, the so called circular flow.

What do we have?

We have households providing labor to businesses in

exchange for incomes and wages,

businesses in turn provide goods and services

and households pay for those goods and services

with dollars, right, so resources moving around

in an economy, right, and everybody's motivated by incentives -

workers have an incentive to do good work so

they get high pay, businesses have incentives to

provide quality products at low costs so that they

earn profits, alright, but maybe there's something

missing from that picture, right,

where are the natural systems in this system?

You can expand on the circular flow to include that up there.

There's John Krutilla in the corner

wondering if we should reconsider some of this.

How do economists study all that stuff?

Math, statistics, data, reasoning, alright,

we use a lot of tools probably the same set of tools that

most people in this room use, alright.

Then what?

Well we try to provide useful information,

alright, useful information to decision-makers.

We kind of live in the world of what ifs,

right, what might happen if...?

Or how do we get here?

We look at cause and effect.

Cost and benefits of an action or an inaction,

what's the best way to accomplish a particular goal?

We use theory and data and math,

statistics to hopefully make the world a better place,

help solve problems; that's what we do.

Economics is supposed to be objective as we

talked about a few minutes ago, alright,

I like to think about it as a cold-hearted

search for the truth.

We don't come in typically as advocates,

right, we're analysts, hopefully for the most part, alright.

What are we advocating for?

Good answers, really.

I get this question often,

is economics a science?

I don't know honestly,

yes and no.

If you think about what Karl Popper said

about economics, about science,

science is the study of things that can be

falsified, alright, and so, yeah,

do we try and do that?

Yes.

Do we follow the scientific method?

Yes, we make observations about the

way the world works, try and think about

the way the world works, theorize,

collect data to test the theory,

alright, and then revisit the theory

based on the empirical results.

Alright, so, but unlike some physical sciences,

we don't have controlled experiments, right,

just like ecosystems they're just really only one economy

and it's hard to control everything together,

so we don't have controlled experiments,

it's messy, right, we have

to use the facts that are given to us that are

available when we try and use good math and good

statistics to draw inference.

Daniel Hausman's a philosophy professor at

Wisconsin Madison, hope I didn't screw that up.

He had an interview in the New York Times recently and

he said and he philosophizes about things related to the

economy, he said "the problems that we want economists

to help solve are more like predicting how leaves will fall

on a windy day than predicting how objects will fall

in a vacuum." I like that, I like that analogy a lot, alright,

it's messy; there's a lot of factors that play

and we analyze a subset of those factors.

We always going to get it right?

No, we're not always going to get it right.

So if economics is a science, it's an inexact one.

So what can economists study?

Anything that involves decision-making,

anything that involves tradeoffs or choices,

well pretty much anything, alright, pretty much anything.

This is the Journal of Economic Literature Classification

of Fields in economics, so if you can read the font, there's,

we haven't used up all the letters if you go through,

but we're getting close.

I'm not sure what we're going to do when we

run out of letters, but just to give you a sense of,

you know, the discipline of economics is

very broad and covers a lot of different topics.

Where're we?

We're in Q - ag and natural resource economics,

environmental and ecological economics,

and if we get to talk about the difference between

environmental economics and ecological economics,

it's an interesting topic that perhaps we can address

sometime in the next few days.

Alright, the two big branches, right,

if all our disciplines are trees,

you go back a hundred years or two hundred years

in our study, we're all working on the trunk.

As our disciplines evolve and as the state of knowledge

improves, we're getting out into the leaves now,

right, we're all, our thesis topics if you

think about it, right,

think about the title of your dissertation,

it was probably really long and esoteric,

very fine tuned topic.

Well a long time ago, we looked at the big things,

so the big branches in this tree of economics are macro

and micro, right.

Macroeconomics is the study of an entire economy.

We look at broadly defined economic variables,

none of us are macroeconomists,

so we're not going to get a whole lot of this this week.

I have friends who are macroeconomists and they

concern themselves with forecasting.

What's going to happen?

What's going to happen to the

regional economy in the next year?

What's going to happen to the

state economy in the next year?

What's going to happen to the

national economy in the next year?

Unfortunately, this is what most people

think about when they think about

what an economist does.

Some fields in macroeconomics, again monetary,

international stuff.

It's important to point out that,

you know, we have all these fields

in econ and there aren't well defined

fences around these fields.

We kind of flow into each other and the theory that

you might use in one sub-discipline carries over and

can be applied in other sub-disciplines

like Sheila said a few minutes ago that the field of

development economics has a lot of micro in it

and it has a lot of macro in it as well.

Microeconomics, a fine tuned look at the

way people behave or interact, trade things.

An analogy that I like,

if the economy is a forest,

and the macroeconomist is flying over the forest

in an airplane, so getting a sense of the big-picture.

What does the whole ecosystem look like?

The microeconomist is walking through the forest

looking at individual interactions between

things in the forest, right.

Micro fields, there are many,

and again there's overlap here,

what you see health, education,

industrial organization, regional, labor,

demographics - economists study all this stuff.

What kind of skills do economists use?

The same set of skills that you all use and

I'm sure critical thinking, math, statistics,

a lot of data analysis, a lot of technical software,

and obviously writing and reporting,

and communication are essential.

Where do economists work?

I don't remember where I got this figure, luckily it's vague.

About half of all economists work for government,

other areas are in the private sector -

banking and investments, consulting, firms, NGOs,

obviously academia.

Is everyone that studies economics an economist?

No, not by any stretch.

One of the funny things about economics is that it's

hard to do economics without graduate training

because of the, perhaps because of the math,

because of the statistical analysis that's involved.

As undergraduates, you don't get to do economics

perhaps until your senior year when you get into that

econometrics course and we, you know,

if we know students are going to go to graduate school,

we push them to do that earlier on so they can start

doing it and seeing what it's going to be like,

but no there's lots of potential job opportunities for

someone with an economics background, here are some.

For an undergrad thinking about majoring in economics is

as exciting and scary at the same time;

there's not a defined career path for those that study

economics, you can really go into a lot of different areas

because of the skills that you have,

the skill set that you develop when studying economics.

Do economists agree on everything?

No, definitely not.

There's a lot of uncertainty, there's a lot of ambiguity,

it's not a clear cut-and-dry type of science, so no.

What do economists agree on?

Well, surprisingly a lot.

Just some general things here,

and we'll get into a lot of the specifics

during the course of the week,

but okay we agree that public policy should

be designed to improve the well-being of the public,

we agree that people respond to incentives,

we agree that voluntary transactions are good

and we agree that analyzing the costs and benefits of

actions and inaction gives us a lot of information about

the way the world works and why we are where we are.

You'll get a lot more on this as we go along.

One of the most important concepts in econ,

if you could grab ahold of two or three things,

alright, and I think about this from teaching undergrads,

I teach the first class, the ECON 101 course to

250 or so students every semester,

what do I want them to leave with?

I know that most of them are not going to be

economists, most of them are not going to be econ majors;

I want them to understand the idea of opportunity cost,

first and foremost; that's probably the biggest thing, right.

What is that TiNSTaaFL?

There is no such thing as a free lunch,

that's what that means.

That's the idea of opportunity cost,

there's no such thing as a free lunch, right,

even though it might not involve money out of your pocket,

every action that you engage in involves

some kind of opportunity cost, you're giving up something;

this is because of scarce resources.

What resources are scarce?

All of them, right, our time, our energy,

our incomes, our natural resources,

all scarce, right, all limited in supply.

Second most important concept I think,

and Sheila and Jim might add to this or disagree,

but being able to think at the margin,

being able to think about change as

being incremental, right, rather than absolute.

♪ Music ♪