TEXT 4. The Scope of Economics

Answer the following questions on the text.

1. What is an economic system?
2. What does a standard of living depend on?
3. What is a planned economy?
4. What are the main features of a planned economy?
5. What are the advantages of a planned economy?
6. What are the disadvantages of a planned economy?
7. What causes delays and queues for some products?
8. What are other advantages and disadvantages of a planned economy?

Most students taking economics for the first time are surprised by the breadth of what they study. Some think that economics will teach them about the stock market or what to do with their money. Other think, that economics deals exclusively with problems like inflation and unemployment. In fact, it deals with all these subjects, but they are pieces of a much larger puzzle.

Economics has deep roots in, and close ties to, social philosophy. An issue of great importance to philosophers, for example, is distributional justice. Why are some people rich and other poor, and whatever the answer, is this fair? A number of nineteenth century social philosophers wrestled with these questions and out of their musings economics as a separate discipline was born. The easiest way to get a feel for the breadth and depth of what you will be studying is to explore briefly the way economics is organized. First of all, there are two major divisions of economics: microeconomics and macroeconomics.

Microeconomics deals with the functioning of individual industries and the behavior of individual economic decision-making units: single business firms and households. Microeconomics explores the decisions that individual businesses and consumers make. The choices of firms about what to produce and how much to charge and the choices of householders about what to buy and how much of it to buy help to explain, why the economy produces things it does. Another big question, that microeconomics addresses, is who gets the things that are produced. Wealthy households get more output than do poor households, and the forces that determine this distribution of output are the province of microeconomics. Why do we have poverty? Who is poor? Why do some jobs pay more than others? Why do teachers or plumbers or baseball pitchers get paid what they do? Think again about all the things you consume in a day, and then think back to that view out over a big city. Somebody decided to build those factories. Somebody decided to construct the roads, build the housing, produce the cars, knit the shirts, and smoke the bacon. Why? What is going on in all those buildings? It is easy to see that understanding individual micro decisions is very important to any understanding of your society.

Macroeconomics, in its turn, deals with the functioning of national economic complex and the behavior of the main classes and social groups.

Answer the questions:

1. Do you like economics as a branch of science? If so, why?

2. Does economics have deep roots in and close ties to, social philosophy? Why?

3. What problems does economics deal with?

4. Why, do you think, are some people poor and others rich?

5. Which two main divisions of economics do you know?

6. What does microeconomics deal with?

7. What does macroeconomics deal with?

8. Which issue of economics is of great importance to philosophers and why?

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