What Is Economics?

If you were to ask 100 people that question, you would probably get some very interesting answers. Some might say that economics is the study of the economy. Some might say that economics is the control of the economy. Others might say it has something to do with supply and demand. Most would tell you that they don't really know and more importantly they don't care.

Unfortunately, even the folks that gave you the one half right answer, supply and demand, would probably tell you that they don't really care.

So, what is the right answer? Well, it may surprise you to know that economics is the study of human action. Wow, that's not like anything you have ever heard before eh? We make choices every day that affect our personal economics. We make those choices and take those actions based on personal gain. Every time we enter into a transaction of any kind, the primary question circling in our brain is, "what's in it for me?"

Every day we make decisions. What to eat, what to drive, where to work, and how productive we are at work. And all of those decisions are driven by our desire to better ourselves.

If you are in any type of marketing, and I would suggest that we all are to some extent, you may have heard that answering your potential customer's question, what's in it for me, will get you closer to the sale than any other customer question you could answer.

That is because we humans are naturally selfish by nature. We are looking out for ourselves and most of the time we will make decisions that we feel will better our lives in some way.

Now if you are a merchant and you sell a product or service to your customers and you have several competitors that sell the same product or service, you may be wondering, how will a customer choose your product over the identical one provided by your competition. That brings us to the next important piece in the study of economics. Incentive. All else being equal, the best incentive will win the deal. And of course incentives improve the deal. Incentives make us feel like we're getting something for nothing.

In fact, if you look at the world around you and find the most ridiculous situation, if you give it some thought, you will find that the situation is brought about because of incentives.

For example, why would our medical profession promote a diet that has been proven to cause the very diseases we are working so hard at curing? I'm talking about heart disease, diabetes, and high blood pressure. Looking at the problem logically, it just doesn't make sense, but if you look at the problem economically, you find that the medical industry has a huge incentive for keeping things the way they are…money and lots of it. It is far more profitable to treat disease than to prevent them.

That doesn't sound ethical does it? And maybe it's not, but it shows how people make decisions that better themselves first.

Economics give us another prospective on the world around us and sometimes it is the only way to understand certain situations. That's why economics is an important field of study, after all, the world is made up of people and economics is the study of human action.