24 September 2007

Microeconomics: Learn it

I'm currently a freshman in college, majoring in political science. When signing up for classes, I decided to enroll in Microeconomics. It was a topic I knew very little about, and I felt that, as a political science student, I should have at least a basic knowledge of it. In case anyone's wondering about the different between micro- and macro- economics, microeconomics studies individual markets, while macroeconomics looks at the economy as a whole.

Microeconomics presents us with some basic knowledge of supply and demand based on scarcity. Scarcity is the main idea of economics; we can only produce as much as our resources allow us to. As my professor told us the very first day, there is no free lunch. It might be free to you, but resources have gone into the production of that lunch. Opportunity cost is defined as "the amount of other products that must be forgone or sacrificed to produce a unit of a product" (Microeconomics, McConnel, Bree). Thus, those resources used to make that soy burger could have been used to make something else.

One aspect of the topic that we only recently covered in class is absolute and comparable advantage. This had an impact on me, as this is something that we can use in many aspects of our lives. Absolute advantage is when you are the best at something; you have an absolute advantage over everyone else. A comparable advantage is when one person is "less bad" at something than someone else.

No matter how hard I try, I can't think of a way to explain this than how my professor, Dr. Miller, explained it. He used the example of two people stranded on a deserted island; one's a jock and the other is a fisherman. There are two tasks that need to be done on the island to ensure their survival: collecting fresh water from the stream on the middle of the island, and collecting enough fish to survive. If each person were to try to survive on their own, they would ultimately get just enough to live. However, if they opened trade between them, they could each live more comfortably. The fisherman could spend his time catching fish, while the jock ran back and forth from the stream.

But what about a different scenario? Imagine that the fisherman is replaced by nerd that has no absolute advantage over the jock? Should the jock still trade with him. The answer is yes. Even though the jock is better at both fishing and fetching water, the nerd might be less bad at fishing than collecting fresh water. They would both increase what little resources they have by the jock continuing to get the water, and the jock fishing. Sure, they'd eat less, but they'd still have more than if they were on their own.

Dr. Miller's example clearly illuminates how important this topic is. Although the above situation is hypothetical, we can use absolute and comparable advantages, along with other factors of microeconomics, in our everyday lives to make ourselves more successful.

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