Economics in Action - Essay Example

LESSONS LEARNED THROUGH EXPERIMENTS Current Topics: Economics in Action as a has taught me a lot of things, both about the economy and my personal life. Each experiment that we conducted in class has made me a better element of the economy and citizen for our country. It is because the lessons that we have tackled in class concern both the micro and macro level of our economy. And I can say that all of the lessons or topics are applicable to my daily living. From the moment I wake up in the morning up to the minute I go to bed at night, economics is with me. I can see and feel economics everywhere. Understanding the basic economic concepts will make us consumers more aware about the things that are happening to our economy. Because we know how the economic system operates, we will be able to see things in an economic perspective and think in an economic way. This economic perspective gives us the importance of resource scarcity and the necessity of making choices specifically on spending our limited income. We all know that scarcity is the main reason for studying economics. It is the concept of being limited that urges us to make choices whenever we have to make decisions. And because we cannot have everything we need and want at the same time or place, we have to forgo or sacrifice something. We are always expected to behave rationally. This is because economics assumes that human behavior reflects rational self-interest. We make different choices under different circumstances. Because whenever we make decisions, we tend to weigh the costs and benefits. And our decisions also vary as these costs and benefits change. We look for and pursue only the things that will give us pleasure, happiness or satisfaction or in economic term our utility. In the end, our decisions are considered purposeful and rational and not just randomly selected. The knowledge of economic concepts we obtained from our books and mastery of economic perspective are not enough to study our behaviors in our economy. Although the practical benefits of studying the concepts are clear enough, I still believed that I have to see it for myself, thus, I recommend the use of experiments in studying economic behavior. We have to keep in mind that economics is also a science. This means that we have to follow a step by step procedure whenever we try to solve an economic problem. We also develop frameworks that will allow us to analyze the possible solutions to economic problems. These frameworks may use models and theories to represent the real world. And because models and theories are only based on assumptions, we have to test these models and theories by conducting experiments. By experimenting, we can tell which model or theory is applicable to explain the present situation. This I have proved through the series of experiments that we have conducted in class. The experiment on political economics made me think critically. Economics and Politics are always associated with each other. Why is this so? Is there really economics in politics? Or is it the other way around? Normal people like me may not see the connection between the two at first time but after studying economics, the link becomes clearer for me. Economics deals with the analysis of the human behavior when it comes to their allocation of the scarce resources in their economy to get what they need and want. On the other hand, politics is concerned with the government or the administration of the public affairs. There is economics in politics because economy is one of the affairs of the government. And there is politics in economics because we choose the persons to direct our economy through elections. As election is our way of choosing our leaders, we should understand economics to become informed voters. We should choose candidates very wisely by knowing their capabilities when it comes to making our economy grow. Because they are the ones to whom we entrust our economy with, we have to make sure that they propose and work on policies that will put our welfare first. The economic and political functions of the government can and do overlap. As a way of providing economic welfare to the people, the government has the responsibility of providing us with public goods. Public goods can be consumed by many individual at no additional cost and without rivalry. However, it is very difficult for the government to design a collection system for a public good on the basis of how much individual use it because of the exclusion principle. It is the principle that states that no one can be excluded from the benefits of the public goods even if that person has not paid for it (Miller, p. 102). Examples of public goods provided by the government are the national defense, police protection and legal system. These are where our taxes are spent and these are also the reasons why the government collects taxes from us. Tax collection is one way of the government to fund its spending. It is also the primary solution to raise its revenue. However, both the producers and consumers may be affected by the tax system that the government is implementing. Provision of a legal system in an economy may reduce the negative effects of market failures such as the free entry and exit of entities in a less restricted industry or free market. At first, we may not see the unfavorable side of having free trade in our markets. But we should consider the necessity of a legal system for the smooth functioning of our economic system. For example, if new producers are free to join and just leave the industry in a free market as they wish, the quality and quantity of the goods available for the consumers will be affected. In these situations, the economic role of the government is justified. That is also the reason why all the relationships among consumers and producers are governed by the legal rules set by the government. On the macro level, economics has also put itself on the limelight. As international trade and global economy can affect all of us daily, we cannot just ignore the role of economics. We can see it through the trade flows or the flow of goods and services. It is when our country export goods and services to other nations and imports goods and services from them. Or through the resource flow like the capital and labor flows. This happens when our country establishes production facilities or firms in foreign countries and foreign countries invest capital in our country. Like capital, labor can also move between nations. Foreigners immigrate to U.S. to work here while some Americans move to other nation because of their work. Another flow is the flow of information and technology. For a trade to happen, information about the products has to be exchanged. Thus, information on the products’ classifications, prices and interest rates are transmitted and received from one country to another. In production, firms here may use technologies that are created and developed abroad and vice versa. Our experiment on determination of exchange rate is also helpful for me. Exchange rate is one factor that makes international trade possible. It also makes the difference between an international trade and domestic trade. The main lesson that I have learned from this experiment is that the country’s economic power can be seen through the exchange rate. Like for example, the U.S. economic power is represented by the U.S. dollar as it is the commonly used and accepted currency in international trade. Because of the use of dollar, there is a basis for the conversion of other currencies. But different factors are also considered in determining the exchange rate. There are certain reasons for the appreciation or depreciation of a country’s currency. This may include changes in tastes, changes in relative incomes, changes in relative prices, changes in relative real interest rates and speculations (McConnell and Brue, p.384). My favorite experiment is the one concerning consumer spending. I was able to absorb the lesson of the topic more because of the experiment. I don’t know if it is because I am a consumer or just because the lesson is easy. But I can easily relate the theories to the experiment and the results that we have gathered are enough evidences for it. Consumer spending does matter not only to our own economy but even to the global economy. Production cannot go on without consumption and consumption will stop without production. My spending rate is affected by my income and my consumption at present can have an impact on the future economy as stated by the income theory. Saving rate and interest rate can also be determined by the spending behavior of the consumers. Economics serves different importance to different people. It plays a vital role in our everyday life especially when we make decisions. It also helps us make better financial decisions. For businessmen, it helps them make intelligent economic decisions to increase their profit while properly allocating their resources. For consumers, it helps them make better buying and spending decisions to maximize their satisfaction while minimizing their expenses. For the workers, it helps them in making their employment decisions on which occupations will pay them well. For us students, studying economics helps us improve our analytical skills. This is one of the most important lessons that I have learned in this class. And because of this, I can say that studying economics is worth my time and effort. BIBLIOGRAPHY McConnell, Campbell and Stanley Brue. Macroeconomics: Principles, Problems and Policies. New York: McGraw-Hill Companies, Inc. , 2005. Miller, Roger Le Roy. Economics Today: The Micro View . Boston: Pearson Education Inc., 2004. Read More