Nova workboard

a blog from young economists at Nova SBE

What is economics all about? What we do?

Many people feel that they are generally familiar with economics. However, asking around, we will find that people have difficulty in defining the subject. “It’s the study of money,” some might tell.  “It´s about how society chooses to distribute wealth “or “it’s the search for mathematical patterns that describe the movement of prices”. This is a very limited view of economics and falls far short of the reality.

To understand economics world, it is useful to know that we live in a world of scarce, finite and insufficient economic resources. However, we live in a world where there seems to be unlimited wants. The combination of both requires a way to continually weigh the costs and benefits of how their economic resources are to be used.

Economics is the study of decisions, the incentives that lead to them, and the consequences from them as they relate to production, distribution, and consumption of goods and services when resources are limited and have alternative uses. Determining the type of life we lead is an economics problem. Getting the most bang for your buck.

As every student of economics knows, price is a function of supply and demand.  When demand for a product rises on constant supply, prices usually rise.  Conversely, when demand falls at constant supply, prices usually fall. So one could conclude that rising food prices have been caused by falling supply or increased demand. However, understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock. Earnings are just one way to change investor’s opinion of a market and ultimately, its price. Economists have developed literally hundreds of variables, ratios and indicators that help predict or determine price changes. The main forms of analysis are fundamental, technical and quantitative. This lesson, however, will touch on the analysis of outside influences (i.e. current events).

If people demand less salt and less fat than you would expect the supply and consumption of these goods to drop not increase, right?  If I replace bags of potato chips on store shelves with the same quantity of product containing less salt and fat at the same price as the old product, assuming no other variables, such as taste, changed, I would expect to sell the same volume of product, make the same money but end up with people consuming less salt and fat, right? Basically, what happened was that potato chip sales began declining precipitously in the 1990’s as a result of a “health-conscious” movement in America away from salty and fatty processed foods. This resulted in the food industry introducing “healthier” potato chips with less salt and fat which resulted in a massive increase in sales of these products and more interestingly an even more disproportionate increase in salt and fat consumption. This phenomenon was a great economic mystery to a lot of people, but good economic analysis illustrated how this phenomenon came about.

Ana Sousa, 760

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Author: studentnovasbe

Master student in Nova Sbe

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