Since trade-offs are a part of every aspect of existence, economics is really the study of daily life.
I feel bad for the professors in other fields because they don't get to teach economics, and I'm an economist. Economics is actually a discipline about how to find and use the principles of everyday life, even though the spaghetti curves that predominate economic education are typically not exciting. It's incredible how frequently our beliefs cause you to reconsider the world and how beneficial that reconsideration may be.
Students naturally desire for knowledge they can understand and use in their daily lives. There are many such important concepts in economics; here are three that everybody may use to maximize their quality of life.
1. Compensating Differentials
One important factor in why certain jobs pay more than others is the nature of the labor. Low-stress or joyful job won't pay well since hiring managers won't have to shell out a lot of money to find qualified candidates. Work that is stressful or dangerous will be lucrative because firms must pay top dollar to attract candidates.As a result, salary disparities serve to balance off variances in working circumstances. Compensation differentials indicate a somber trade-off: there are no perfect jobs for everyone because everyone would want that job, the salary would drop, and the job wouldn't be as great anymore, holding the difficulty of attaining the job constant (like necessary schooling).
It's crucial to keep in mind that eliminating disparities isn't dependent on what one person desires, but rather on what the majority of people prefer. Market pressure is at play here, and those forces can influence salary in a variety of different ways. Salary is affected by factors such as degree of independence, sense of fulfillment, flexibility of hours, stress, expected availability, emotional strain, physical danger, job stability, and advancement chances.
Lesson: Develop your job based on your uniqueness rather than merely what you enjoy doing. With so many variables at play, it's simple to identify one or two areas where you differ from the norm, and you can use that distinction to your advantage.
To understand what you value and how you differ from most others takes a lot of introspection. It's a good thing I discovered in college how exceptionally strong and weak my preferences for independence and the "finer things" are. I'm very happy working in very low-paying academia because of how flexible it is.
Embrace your unusual preferences. You will get rewarded as if your soul is aroused daily if you work on "good feeling" projects unless they truly stir your soul. Be aware that working on the most interesting projects will likely require you to perform a lot of tedious tasks because many people find the thought of participating in the excitement to be really appealing. You should seriously consider working in computer science even if you only sort of enjoy it since you will be paid as if you detest it.
2. Opportunity Cost
The gain that any decision forgoes is known as opportunity cost. Economics is about making wise decisions, and in order to gain something spectacular, you must give up something equally excellent. Because any money, time, or effort invested may have been utilized for something else, all expenditures are actually opportunity costs.The principle is best shown through graduate school. Students who graduate from college when the job market is tight can find decent employment right out of school, earning a good income and getting valuable experience-building chances. Because of all of this, graduate school enrolment declines during economic booms because attending graduate school has a significant opportunity cost—you surrender so much. However, graduate school has a low opportunity cost and is overrun with applicants when the job market is weak.
Lesson: Apply to graduate school when the economy is strong if getting an advanced degree is part of your life goals. You'll have far less competition and be able to enroll in a better school than you otherwise might (and the graduate program you choose counts a lot).
Yes, you will forfeit a few years of experience and income, but if you want to enroll in graduate school anyhow, the actual cost is the added value the economic boom brought. It is best to invest when the prospective returns are the largest.
3. Comparative Advantage
Most people's first instinct when choosing who should do a task is to consider who is most suited to complete it; however, economists are aware to avoid such simple reasoning. Anyone who can do one fantastic thing is typically able to do other amazing things as well, and every decision has an opportunity cost. Comparative advantage takes into account both what is made and what is not made.Despite the fact that a fashion designer may produce fantastic clothing, time spent double-stitching a pair of pants cannot be employed to develop new looks. She is best at sewing, but even so, she doesn't have a comparative edge in sewing because coming up with fresh looks is so much more useful. An intern could have trouble threading the needle, but they lack the expertise to accomplish much else. They are the ones who have a competitive advantage in sewing since their opportunity cost is minimal.
Lesson: You will have a comparative advantage in manual labor in early career positions—that's why you were hired. Understand that. Accept that. Even if you're having trouble with something that your employer could solve twice as quickly, you should still strive to solve the problem on your own. Saving your boss an hour is significantly more crucial than saving yourself two (or five or ten). Your boss stops making important decisions. You discontinue filing.
The Bottom Line: Life Is About Trade-offs
Alfred Marshall, an economist from the late nineteenth century, characterized his field as "the study of mankind in the ordinary business of life." Marshall may be most remembered for developing our essential supply and demand diagram, but he was also aware that diagrams were merely illuminating devices for our core truths. Actually, economics is the study of daily life.Economics understands this constraint more than any other social discipline because life is all about trade-offs. Everything won has a price; this is the unifying theme running through all of these lessons.
The only way to maximize life is to accept that fact.
