Why is Economics So Confusing? Three Core Concepts To Strengthen Your Understanding

Unfortunately, the way economics is typically taught today is extremely confusing for many students. The frustration that results even in introductory level classes is often palpable. If that describes your experience, don't beat yourself up. The primary problem is not with your understanding: the problem is that academic economics is completely divorced from common sense! Let's reason together:

Economics is based on several core assumptions that are in place so that the math works out smoothly.

A. People are always rational (okay...)
B. People always maximize utility (what's utility?... well, money I guess)
C. People are essentially the same (whatever...)

Please note that the real wold, if anything, tells us that the exact opposite of these assumptions is true. No wonder it is difficult to get an understanding of economics: it's modeling a fictional world! The good news is that if we get underneath all the formal jargon of the subject, there are actually some important things to discover that are applicable to every area of your life. Here are the core, common sense concepts that will strengthen your understanding of the subject of economics and the world in general:

1. Scarcity (because we do not have infinite resources we have to make decisions about prioritization)
2. Opportunity cost (whenever we choose to do something we also choose to not do everything else)
3. Diminishing marginal returns (the more we have of something material the less "bang for the buck" we get)

If you're lost in a sea of economics buzzwords and don't know what happens to aggregate supply in a debtor nation when the interest rate increases moderately and the marginal productivity of labor is above the marginal cost of production, then try not to panic even though it's a natural reaction. Simply return to the three core concepts that actually make common sense and build up your understanding from there.



Steven M.

Expert Online Tutor - Finance, Economics, Interviews, Math, Test Prep

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