This is a guest submission by Paul Huisen.
What is economics?
At its heart, economics is the study of how people react to incentives to maximise limited resources. In short, economics is the study of scarcity and causal relationships of people’s decisions to events that impact supply and demand of products. Based on this definition, the three main components of an economy are: people, incentives, and scarcity; the absence of one component will invalidate the economic system.
Economics enables experts to build models based on people’s behaviour to comprehend and explain complex trends that occur, as well as prevent the recurrence of undesirable incidents.
When experts identify negative precedents, which could potentially cause an economic crisis, they generally alert governments to intervene in economic activities by enacting monetary and fiscal regulations. For instance, during the COVID-19 pandemic, the US government responded quickly to the threat of looming unemployment and financial crisis by issuing stimulus checks, printing money, and purchasing government bonds (quantitative easing) to prevent severe economic recession. The actions taken by the US government in May 2020 were similar to those taken in 2008 when the United States was hit by a financial crisis. Hence, understanding the reaction and behaviour of society is instrumental in preventing an economic crisis that has happened before.
Key components of economics
Economics is a two-way system that includes two parties with different interests, which requires balance. Usually there are two parties in an economic activity: buyers and sellers. Buyers are generally motivated to obtain goods or services at the lowest price, while sellers aim to maximise profits. Finalising a transaction requires consensus between the two parties. There are myriad economic factors that influence prices: supply, demand, quantity, and market taste, among others. An agreement is reached when buyers and sellers both accept the price of a certain product as being mutually beneficial and meeting all the economic factors involved. Thus, incentives (both buyers and sellers) play a crucial role in creating balance in economic activities.
Scarcity also empowers economic activities and gives value to products. Scarcity determines supply and demand.
Suppose supply and demand of product A is 100 at the price of $1 each. If the supply doubles to 200 while the demand stays the same, then the price of product A will be halved ($0.50). In contrast, if the supply stays the same and the demand doubles, then the price will also double ($2). This phenomenon only occurs only when product A is limited, which attracts buyers. Without scarcity, there is no economic activity because of unlimited availability. As a result, the resource has zero value. For instance, people do not pay for air or sunlight because these resources are unlimited and lack scarcity. The presence of scarcity ensures economic activities based on supply and demand.
Debate takeaways
Identify the three main components of economy:
- Who are the “people”?
- What is the incentive that the motion wants us to achieve?
- How does scarcity affect the existing issues?
For example, take the motion: This House would provide financial incentives (e.g tax breaks) to companies that require skilled labor who hire non-graduates.
Let’s look at side Government, and analyse the following metrics:
The problem here is inequality and employment.
Who are the people to target? It’s companies who hire non-college graduates with an eye on skills training
The incentives we provide are tax breaks.
How is scarcity involved? There’s a scarcity of jobs for non-college graduates since they face difficulties finding one. This might be due to their less attractive skillset or education background.
So, the line of logic could be:
Most people without tertiary education struggle to get a well-paying job (scarcity). This phenomenon leads to increases in unemployment, poverty, and income inequality (problem). To solve this problem, some companies must be willing to hire non-college graduates (people/actors). However, companies avoid hiring non-graduates whom they consider unskilful. The government can break this deadlock by offering companies tax breaks which provides an incentive for companies to hire people without college diplomas (incentives).
Note: this example is limited and is only intended to show new debaters a simple line of analysis.