What is the Most Useful Idea in Economics? (Part 1)

Recently I listened to a podcast called Planet Money, where they interviewed different economists. They asked them a simple yet important question: “What’s the most useful idea in economics?” They received a bunch of different answers and provided practical examples of how those concepts relate to everyday life.

Economics is interesting because of the fact that economics explain how society operates and the way people behave and interact in a market setting. This podcast and question shines light on how economic ideas are used when we all make decisions in our everyday lives. That is the beauty of this discipline and why I decided to become an economics major.

After listening to the podcast, I decided that I was going to interview different professors and students to see what they believe is an important idea they learned through economics. I thought that talking to both professors and students would make this post much more applicable to people who don’t understand one bit of economics. Students do not have years and years of economic specialization like professors do, so I would think that students would provide much more to the point answers, rather than complex ones. I also interviewed many of our professors on campus due to the range of differing specialties of Puget Sound professors. These are the big ideas that I got out of my interviews:

The one that I received the most responses for was Opportunity Cost. Opportunity cost is the idea that you have to give up the value of something in order to do something else. This idea applies to pretty much every decision that occurs in daily life. An example of this would be how people decide spend their time. A college student decides to go out on a Friday night and bowl with their friends. The opportunity cost of going bowling is what they had to give up in order to go bowling. The student could be giving up things like sleep, study time, etc. Every decision that we make has a cost to it, and we do this every day for all our actions in our daily life.

Another one that I received a lot of responses for was Comparative advantage. Comparative advantage is an idea related to trade, where one group has the ability to produce more of a good than another group, so they specialize and only produce that specific good, and trade for the other good. This ends up leaving both parties better off than just producing both goods by themselves. An example of Comparative advantage in everyday life would be figuring out who should do what chores between roommates. If one roommate is better at sweeping the floors, and one is better at doing dishes, then they should specialize and do those specific chores rather than doing their own dishes, and sweeping up only part of the house.

These are just two examples of how economics applies to the world around us. Now I understand that these examples may not be the very best, but the underlying implications are still there. Economics is all around us in everything we do. That is what makes economics so beautiful and so practical. If we all would take a second to look at how these concepts apply to our lives specifically, we all can make sense of why we make decisions the way we do, and how we can make better decisions that fit our goals, aspirations, or sleep schedules for us college students. Next time you make a decision, think about why you did, and think about the economics behind that answer, you’ll be glad you did.

Here is the Planet Money Podcast: https://www.npr.org/2020/01/09/794977811/episode-963-13-000-economists-1-question

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