Economic Thinking Paper

Economic Thinking Paper

Thi Giang Tran

Date paper is due February 26th, 2017

BSM 407_04

Submitted to

Dr. Elizabeth Bieler

Economics is normally described as a field using scientific methods to build theories that relate to the explanation of human action, human choice and the utilization of scarce resources. As stated by Gowdy (2009), “The field of economics occupies a dominant position within the social sciences. It has a cohesive, well-developed reigning paradigm and a rigorous methodology with which to approach a variety of practical and theoretical problems”. Due to the interactions with various aspects of life, economics plays a fundamental role in all societies and become one of the most important global problems of that require powerful technique to handle with. “The economic way of thinking” is one of the effective tools to help us understand more about economics and solve economic puzzles.  In this paper, I will dig deeply into “the economic way of thinking” by explaining economic concepts of scarcity and choice; describing economic model-building process which includes problem identification, model development, testing a theory; analyzing why economists disagree with different economic thinking perspectives.

Firstly, mentioning scarcity, Tucker (2017) defined it as “the condition in which human wants are forever greater than the available supply of time, goods, and resources.” Additionally, scarcity is also known as the human inability to get everything we want because we want more than we can get (Parkin, 2012). Because of the limitation of resources, no society can satisfy all desires of the human. No matter how wealthy a person is, they still have the wants that can’t be fulfilled. Therefore, people in all societies have to deal with the problem of scarcity. Facing with scarcity while the resources are scarce, the human has to make a choice which desires they want to be satisfied first. Like Parkin (2012) said “A choice is a trade-off”, we are not able to have both things that we want so we have to give up on one thing to gain another. The fact that scarcity causes human to make choice forms an eternal issue and become the important basic concept of economics which is the study of how society chooses to spend its scarce resources to the production of goods and services in order to fulfill illimitable desires (Tucker, 2017).

The economic way of thinking technique includes a model that is very common and was used before in many other fields like mathematic, physics, chemistry, and biology. It is a procedure called Model-Building Process. It consists of three main stages and is formed in order to solve economic issues step-by-step.

The first stage of the process is problem identification. In this step, economists will observe the phenomenon around and then define the problem they want to handle.

Once the issue is identified, economists will move one the second step which is model development. The main purpose of this stage is to develop a model based on simplified assumptions. According to Tucker (2017), “A model is a simplified description of reality used to understand and predict the relationship between variables”. Besides, as mentioned by (Mankiw, 2012), “Assumptions can simplify the complex world and make it easier to understand ”. A useful model created from simplified assumptions is needed to establish generalization from real world difficulties and make occurrences become easy to understand. Simplified assumptions are also helpful to get rid of another variable that complicates the analysis.