Fascinating economy

Fascinating economy
Larissa Zaplatinskaia

This book is an academic course in international economics for university students. The study of economics is important because the economy – global, national, local, and personal – effects what you do every day. Economics influences the work you do, where you live, what you eat, how you dress, whether there is gas available for your car, and more. Economics also influences government policy and international relations including wars.

Fascinating economy

Larissa Zaplatinskaia

© Larissa Zaplatinskaia, 2020

ISBN 978-5-0051-9933-1

Создано в интеллектуальной издательской системе Ridero

Chapter 1

You may never have thought of it this way, but in some ways, economics is like a game. Games have players and rules. Games involve decisions and actions, and they always have a goal. The same is true about economics.

Still, there are some differences. In games, you typically get to decide whether you want to play. But no one ever asks you if you want to play the game of economics. In this game, you play whether you want to or not. That is because the game of economics is going on all the time. It is played at every second of every day in all parts of the world.

Since you are already playing the game of economics, you should know what kind of game it is and learn the rules. That way you can play it as well as possible.

Introduction

The study of economics is important because the economy – global, national, local, and personal – effects what you do every day. Economics influences the work you do, where you live, what you eat, how you dress, whether there is gas available for your car, and more. Economics also influences government policy and international relations including wars.

Understanding the basics of economics will help you make good personal financial choices and will help you make wise environmental and political decisions, as well.

We will start by learning that economics is not a collection of «other» people but a complex system in which every individual has roles and goals.

We will also explain the four fundamental questions of economics and how, depending on the way these questions are answered, the game changes. Very soon, you will be well on your way to understanding what the economy is all about and how it relates to your everyday life.

Some games are similar to each other. Take basketball and soccer, for instance. They both have two sides consisting of a set number of players. There are specific ways to score points. There is a winner at the end of a set amount of time. So, although basketball and soccer are different games, they have much in common.

But what about checkers and soccer? Maybe there are one or two similarities, but the ways to win are very different. In soccer, the team that scores more points wins. In checkers, a player who takes all his or her opponent’s pieces is the winner.

Is there anything that is the same in every kind of game?

Playing by the Rules

Are there any games that allow players to do whatever they want? No. All games have rules. There are important rules in economics, too.

In economics, the rules are usually laws. Laws are rules that define what is and is not allowed. For example, you cannot steal from others. That is a law, and it is also one of the rules of economics. Another law is that exchanges must be voluntary. Consumers cannot be forced to buy things. Voluntary exchange is a rule of economics, and it is also a law.

Rules and Properties

Games require that people play by certain rules, but that is not all there is to games. Games are fun precisely because there is more to them than just the rules.

In tag, we all know to avoid the person who is «it.» This is not a rule. There is no penalty if we do not follow it. But even though it is not a rule, it has an effect on how the game is played.

Anything that is not a rule but still affects how a game is played is called a property. The properties of a game follow naturally from the rules, but they also add something to the game that goes beyond the rules. This is how economics works.

Economic Properties

Like all games, economics has properties in addition to the rules. These properties affect how the game is played.

Remember: One of the rules of economics is «no stealing.» If you want to make an exchange, the buyer and seller have to agree on the price and then make the exchange. The rule, however, does not tell you how much the price will be. It could be any amount.

This is not true for all games. In Monopoly, prices are set by the rules. A railroad costs $200. But in economics, unless there is a specific law that sets the price, the amount is up to the buyer and seller.

How do prices get set if the rules do not set them? One of the properties of economics helps: Buy low, sell high.

Why is this a property of economics? The buyer is giving up something good: money. So, the buyer usually wants to pay as little as possible. The seller, on the other hand, wants to get as much money as possible. Buyers want lower prices, and sellers want higher prices. Hence, buy low, sell high.

While almost all buyers and sellers play the game like this, it is not a rule. You do not go to jail if you sell something for a lower price than you could have. You are not a criminal if you pay more for something than you have to.

In economics, there are a lot of properties. Sometimes, economists call them «laws,» but they are not laws like «no stealing» is a law. They are properties, like «buy low, sell high.»

One of these properties is called «The Law of Supply and Demand.» Despite the name, «The Law of Supply and Demand» is actually a property, not a law. This property can be complicated, but one part of it states that when the supply of something is low and the demand is high, then the price will be high. Why? It is related to the «buy low, sell high» property.

Let us say someone has a rare object, like one of the few original copies of the Declaration of Independence. What if you wanted to buy that rare object? You cannot steal it. That is a rule. And as a buyer, you want to pay as little as possible.

So, you offer a low price. But there are other buyers, too. If you want to buy this rare copy of the Declaration of Independence, you have to compete with the other buyers. Someone else also wants it badly, so they offer more than you. Now, you cannot go somewhere else to buy because it is rare. If you want it, you have to offer more. So, you do. But the other person offers more than you again. The price is going higher and higher. Why? Because of the «Law of Supply and Demand.»

No one is forced to obey this «law.» There is no Supply-and-Demand Police making sure this happens, but it happens all the time. Economists call this «The Law of Supply and Demand» instead of «The Property of Supply and Demand» because nearly everyone obeys it even though it is not actually a rule.

Outcomes

There is another feature common to all games. Every game has an outcome. Outcomes are the real heart of any game.

Outcomes also take place throughout the playing of a game. They result from plays or moves, but the idea is the same – one thing results in another.

Economics has many outcomes. A sale is a common example. When someone buys something, and the item and money change hands, that is an outcome. Later, we will take a look at other economic outcomes.

And the Winner Is – No One?

So far, we have seen that all games have certain features:

• Players

• Rules

• Properties

• Outcomes

It seems as if there is one more thing that is common to all games: a winner. Does an activity need a winner to be considered a game? Not necessarily.

Consider the game of tag. The players in tag are either «it» or «not it.» Which one is the winner? Do you win if you are not it? No, you are just one of the players who are not it. And being it does not make you the loser. You are just it until you tag someone else.