The Definition And Application Of Economics The definition of a subject indicates not only what to study, but also why to study. So it is crucial to achieve a fulfilling understanding of the subject matter, especially for a beginning learner. This paper analyses the definition based on the past relevant views, and then links it to nonacademic use. Definition of economics To have an outline of what economics is, it is necessary to review the opinions of representative scholars of the main modern western economics schools.
The main schools include Classical School, Keynesian, Monetarism, New Keynesian, New Classical Macroeconomics, Austrian School, Supply-side and New Institutionalism(Fang,2004). Despite of subtle differences, the views as to the economic definition can be classify into two genres:first, the definition, adopted by Keynesian and New Keynesian, that focuses on society mechanism of allocating scarce resources(Samuelsson,1992; Manama,2011); and, second, the definition, accepted by other schools, that emphasizes purposive human action(Marshall,1960; Friedman,1976; Hayes, 1945; Cease,1978).
However, two positions reach a consensus to some extent. At first glance, the premise of each view s different, scarcity and purposefulness respectively. Admittedly, the purposes of man’s behavior can be quite complex. In most cases, the purpose is maximizing his/ her interest. Since “The wellspring of human action is dissatisfaction” (Callahan,2004, p. 22), the resources that individual wish to own are always limited, in other word, scarce. In terms of study object, two opinions do not contradict with each other essentially, neither.
Take the textbook “economics” written by Manama. Economists studies how society utilizes resources by three steps: discussing individual decision aging, understanding interaction and integrating these decisions and interactions(Manama,2011). That is to say, studying society allocation mechanism is studying a series of human actions. Based on the analysis above, economics is a science that refines the characteristics of rational thinking in any trade-off circumstance. Despite self-interest involved in a rational person’s thought, the interest here is not equal to money.
The reason why many economists limit interest to profit is that this prerequisite makes benefit measurable, consequently easy to study. However, as economics develops, more types of interest such as happiness and sense of accomplishment can be covered in the future. And key theories derived from past models built on the basis of money calculation may also be applicable to this future study. Application in negotiation Because economics is about human behavior, it is never far away from ordinary people.
For instance, even though my ideal Job is negotiator, rather than economist, I believe that I can apply economic theories in negotiation strategies. Imagine myself to represent an Australian manufacturer to import components from a Chinese applier. Before negotiation, I have to do some preparatory work. One of the most important tasks is to find the lowest price that may be accepted by the seller. Theoretically, provided that the producer surplus is above zero, the seller may be willing to sell the product.
Then, the key point is the cost of production. According to the principle to economics, rational people always look at the margin(Manama,201 Thus, the cost is marginal cost. In this case, variable cost, instead of the total cost including fixed cost, should be investigated. Fixed cost is sunk cost, which is relevant to this transaction. Negotiation place and schedule are discussed before formal meeting. I should try my best to persuade the supplier’s managers to come to Australia and extent the time they spend in Australia as long as possible.
This proposal not only incurs extra travel expense, but also increases their opportunity cost, since they cannot do any other work except negotiating. As a result, the higher their opportunity cost, the more reluctantly they give up the deal, the more likely they make the compromise. Next stage is negotiating price and quantity. Obviously, the leer would have calculated the highest possible price. Yet I can change their idea by changing consumer surplus estimated by the exporter. I assert that it is predicted that the product of my manufacturer may not sell as well as usual.
That is to say, my willingness to import decreases. Consequently, considering limited consumer surplus, the seller will not set a high quotation. Besides, it is significant to prove the demand elastic. I note that there are many other suppliers who can provide components of similar or even superior quality, and that my client is not in urgent deed of the components. By demonstrating the easy availability of close substitutes and long time horizon, I indicate that little price enhancement will lead to relatively high decline in demand and vice versa.
Taking the total revenue into account, the seller will tend to descend the unit price. Furthermore, I mention that Australian government promotes the International trade with China. Such positive policy creates a positive externalities because the transaction is more likely to operate smoothly. In light of positive externalities, the seller may cut price. Certainly, stagnation is the art of compromise. No concession, no success. But the pace of concession must be appropriate. The law of diminishing marginal returns is known to all.
While the first compromise satisfies the opposite party a lot, the second equal value concession may achieve little active response. What is worse, the seller will question the buyer’s sincerity if the buyer gives in too much. To summarize, how negotiation strategies work can be supported by economic reasoning. Since in a broad sense negotiation is communication aiming at resolve differences, negotiation an be taken as an example to illustrate that economics is also helpful to daily life.
Conclusion This paper was written to discuss the definition of economics and how to use economics in work and life. From my opinion of view, economics equips learners with a new methodology for thinking. Unfortunately, due to limited knowledge, I am unable to cover the detailed methodology in the definition nor application process. I will explore it during my following study. Returnees Callahan,G. (2004). Economics for Real People:An Introduction to the Austrian school. Auburn,AL:Ludwig von Misses Institute and contiguous disciplines.