essay about economics in daily life

Importance of economics in our daily lives

Economics affects our daily lives in both obvious and subtle ways. From an individual perspective, economics frames many choices we have to make about work, leisure, consumption and how much to save. Our lives are also influenced by macro-economic trends, such as inflation, interest rates and economic growth.

Summary – why economics is important

The opportunity costs we face in deciding what to buy – how to use time
How to maximise our economic utility and avoid behavioural bias
How the macro-economic – inflation, economic growth and employment prospects affect our living standards.
Individual markets like housing market can influence our standard of living.
Understanding issues like externalities. We may not like paying petrol tax, but if we see it helps to reduce pollution and congestion and the tax revenue is used to subsides public transport, it gives a different perspective.

Economic choices – opportunity cost

We are constantly faced with choices. It may be a matter of limited time. For example, at the weekend:

We could spend 8 hours working in a cafe at the Minimum Wage of £7.83
Or we could spend 8 hours studying for our A-Levels.
Alternatively, we could choose to spend 8 hours of leisure (sleeping in, Facebook e.t.c.)

Each choice has an opportunity cost. The opportunity cost of earning 8*£7.83 = £62.64 is that we don’t have time to study. This could lead to poorer exam results, which could lead to lower future earning potential. Choosing to maximise our income in the short term (earning £62 a day) may reduce our lifetime earnings and could be a poor decision – unless working in a cafe doesn’t affect our future earnings. We may feel job experience more useful than an essay on allocative efficiency.

The problem is that when making decisions about whether to study, work or pursue leisure, we may forget or ignore long-term effects. Deciding to spend all our free time earning £62 is something we may regret later in life. Economists suggest education is a merit good – meaning people may underestimate the benefits of studying. Under-consumption of education is an example of market failure.

Considering opportunity cost can help us make better decisions. If we act on instinct, we may choose the most pleasurable or easiest course of action, but the best decision in the short term may not be best in long term.

Choice of study vs leisure

A production possibility frontier showing a simple trade off – time spent working or time spent on leisure.

Another important element of life is work. Which job will give the most satisfaction? It is not just about finding a well-paid job, we tend to gain most job satisfaction when we feel part of the process and a degree of responsibility and influence. Behavioural economists such as Dan Ariely have examined motivations for work and find that income/bonuses is less important than suggested by neo-liberal economic theory.

Nudges and rational behaviour

In traditional economics, it is assumed individuals are rational and utility maximising. In other words, it is assumed we calculate decision to maximise our economic welfare – spending money only on those goods which give us satisfaction.

However, behavioural economists note that we are often influenced by irrational and non-utility maximising influences. For example, companies which ‘ nudge ‘ us to make decisions which harm our welfare – e.g. super-sized portions, we don’t really need but cause us to become less healthy.

The importance of the insights of behavioural economics is that we can become aware of factors which may cause us to make sub-optimal decisions. We can try to resist commercial nudges – which encourage us to consume goods which don’t really benefit us.

Behavioural economics and bias

A recent development in economics is the work of behavioural economics – which places more emphasis on elements of psychology. For example, are humans really rational utility maximisers – as suggested by traditional economic theory? Behavioural economics suggests not – but humans are influenced by emotional factors, such as loss aversion (we prefer the status quo, to losing what we have), present time period bias .

Importance of the macroeconomy on our daily lives

When making decisions we don’t tend to first look at leading economic indicators. But, perceptions about the economic outlook can influence certain decisions. For example, those aware of the current economic situation may be aware the depth of the recession which makes a period of low-interest rates more likely. This suggests that if you could get a mortgage, mortgage payments would be cheaper, but, saving would give a poor return.

However, the bad state of the economy and high unemployment rate is a factor that may encourage students to stay on and study. Since youth unemployment is currently very high, it makes more sense to spend three years getting a degree rather than going straight on to the job market.

The only problem is that many other students are thinking the same. Hence the competition for university places is becoming much stronger.

How to survive a period of inflation?

Suppose, we are living in a period of high inflation, how would that affect our economic welfare?

The real value of our savings will decline – unless we can secure an interest rate higher than the rate of inflation. In periods of high inflation, it may be advisable to take out index-linked savings – saving accounts and bonds which give an interest rate related to the inflation rate.

If we cannot secure a good interest rate, an option is to invest in commodities or assets which can protect their value better than ordinary savings accounts

How will we be affected by rising interest rates?

If interest rates increase, then it will increase the cost of mortgage payments and interest on loans and credit cards. It can be problematic for individuals who are over-extended on credit. Higher interest rates can also lead to a slowing economy and increase the risk of unemployment.

Mortgage affordability. High-interest rates in the late 1980s caused mortgage payments to take over 50% of take-home pay from households.

See The effect of higher interest rates .

If we are considering investing in the stock market or housing market, what can economics teach us?

One cautionary tale is that of irrational exuberance – avoid getting caught up in asset booms – where investor confidence gets carried away and people end up buying shares/assets – even though the price has become overvalued.

Externalities

When choosing what to consume and produce, we often ignore externalities. For example, driving into city centre may contribute to pollution and congestion. The social cost of driving is higher than the private cost. Would our living standards be increased by supporting a congestion charge? At first glance, no – we pay higher taxes. But, if there are external costs a higher tax can lead to a more socially efficient level.

A tax can shift output from Q1 to Q2 (which is more socially efficient)

Limitations of economics

As a final thought – is economics overvalued? As a society do we give too much weighting to maximising income, profit and GDP? In a sense, traditional economics encourages us to view life from an economic/monetary perspective. But, perhaps this causes us to miss out on more important issues, such as spiritual understanding, concern for the environment, concern for others and getting the correct work/life balance.

Economics in everyday life
The importance of economics

10 thoughts on “Importance of economics in our daily lives”

Economics is important but sometimes I feel that people like us, accounts in the end fail in many other aspects of life because economics is always our main consideration.

economics is the one important in our daily life.but some people can appreciate how important this.we need to cooperate all people in fair situation like reach even if poor.

,,kathrina,,

ECONOMICS IS IMPORTANT IN OUR DAILY LIVING BECAUSE IT MAKES USE OF SCIENTIFIC PROCEDURE OF FINDINGS.

it isimportant coz it widens our undersatnding which in turn improves the standards of living

economic is important because its science as we as art…….. now how much science and art are important ?……. woooooooooo

Thank you for this informative article on how economics affects our daily lives. I found the opportunity cost to be very interesting, like when you mentioned how we all make choices about what to do with our time and could spend either 8 hours working, 8 hours studying, or 8 hours doing something fun or relaxing. It’s tough to make economic choices on a daily basis but this article was a great beginning insight into how beginning economics work.

This article was very helpful and informative.👍

I have been looking for this Economics of Everyday Life article since long time. Thanks author.

very helpful article, but please help us with references next time. thank you

Comments are closed.

Essay on Economics Importance In Daily Life

Students are often asked to write an essay on Economics Importance In Daily Life in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Economics Importance In Daily Life

Understanding economics.

Economics is a subject that studies how people, businesses, and governments make choices about how to use resources. It’s like a guidebook for making decisions. It’s not just about money, but also about time, effort, and what you give up when you make a choice.

Economics in Daily Life

Every day, we make choices based on economics. When you decide to buy a toy with your pocket money, you’re using economic thinking. You’re choosing what you value most. You’re also considering what you’re giving up – maybe another toy or a candy bar.

Importance of Economics

Understanding economics helps us make better choices. It helps us decide how to use our resources wisely. It also helps us understand the world around us. For example, why are some things more expensive than others? Economics can help answer that.

Economics and Future

Economics also helps us plan for the future. It helps us understand how to save and invest money. It helps us understand how the economy works. This knowledge can help us make smart choices about jobs, education, and more.

250 Words Essay on Economics Importance In Daily Life

What is economics.

Economics is a subject that helps us understand how people, businesses, and countries make choices about how to use their limited resources. The goal is to meet their needs and wants. This subject is part of our daily lives, and we all practice economics without even knowing it.

Personal Economics

Every day, we make decisions about what to buy, where to buy, and how much to spend. We also think about saving money for future needs. This is personal economics. We have to choose how to use our money wisely.

Economics in Business

Businesses also use economics. They decide what products to make, how many to produce, and at what price to sell them. They look at the demand for their products and the cost of making them. This helps them make profits and stay in business.

Economics in Society

Economics also plays a big role in society. It helps governments decide how to use their money. They have to choose what services to provide, like schools, hospitals, and roads. They also have to decide how to pay for these services, usually through taxes.

So, economics is very important in our daily lives. It helps us, businesses, and governments make important decisions. Understanding economics can help us make better choices and understand the world around us. So, even if you’re a student, it’s never too early to start learning about economics!

500 Words Essay on Economics Importance In Daily Life

Economics is a subject that helps us understand how the world works. It studies how people, businesses, and governments make choices about how to use resources. It’s like a guidebook that helps us make smart decisions about money and resources.

Economics in our Daily Lives

Every day, we make choices that involve economics. When we decide what to buy with our pocket money, that’s economics. When our parents choose how to spend their salary, that’s economics too. Even when our government decides how to use taxes, it’s using economics.

Importance of Economics in Spending

Economics helps us make good decisions about spending. It teaches us to think about the value of things. For example, if you have only $10 and you want to buy a book that costs $15, economics can help you decide if it’s worth saving up for the book or if you should spend your money on something else.

Economics and Saving

Economics doesn’t just help us with spending, but with saving too. It can help us understand why it’s important to save money for the future. For example, if you save a part of your pocket money every week, you could buy a more expensive toy or game later. This is called delayed gratification, a key concept in economics.

Economics in Resource Allocation

Economics also helps us understand how to use resources wisely. Resources can be anything from time to natural resources like water and trees. For example, if we understand that water is a limited resource, we will be more careful about not wasting it. This is an economic principle called scarcity.

Economics and Jobs

Economics is important in understanding jobs and careers too. It helps us understand why some jobs pay more than others and how supply and demand affect job opportunities. For example, if there are many people who can do a job, the pay might be lower. But if a job requires special skills that few people have, the pay might be higher.

In conclusion, economics is a part of our daily life. It helps us make smart choices about spending and saving. It teaches us to use resources wisely and understand the world of work. Just like a map helps us find our way, economics helps us navigate through life. So, even though it might seem like a tough subject, it’s worth learning because it’s so useful in our daily lives.

That’s it! I hope the essay helped you.

If you’re looking for more, here are essays on other interesting topics:

Essay on Economics And Society
Essay on Economics And Economists
Essay on Economic Theory

Apart from these, you can look at all the essays by clicking here .

Happy studying!

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Nobel Prize-winning economist Esther Duflo sympathizes with students who have no interest in her field. She was such a student herself — until an undergraduate research post gave her the chance to learn first-hand that economists address many of the major issues facing human and planetary well-being. “Most people have a wrong view of what economics is. They just see economists on television discussing what’s going to happen to the stock market,” says Duflo, the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics. “But what people do in the field is very broad. Economists grapple with the real world and with the complexity that goes with it.”

That’s why this year Duflo has teamed up with Professor Abhijit Banerjee to offer 14.009 (Economics and Society’s Greatest Problems), a first-year discovery subject — a class type designed to give undergraduates a low-pressure, high-impact way to explore a field. In this case, they are exploring the range of issues that economists engage with every day: the economic dimensions of climate change, international trade, racism, justice, education, poverty, health care, social preferences, and economic growth are just a few of the topics the class covers. “We think it’s pretty important that the first exposure to economics is via issues,” Duflo says. “If you first get exposed to economics via models, these models necessarily have to be very simplified, and then students get the idea that economics is a simplistic view of the world that can’t explain much.” Arguably, Duflo and Banerjee have been disproving that view throughout their careers. In 2003, the pair founded MIT’s Abdul Latif Jameel Poverty Action Lab, a leading antipoverty research network that provides scientific evidence on what methods actually work to alleviate poverty — which enables governments and nongovernmental organizations to implement truly effective programs and social policies. And, in 2019 they won the Nobel Prize in economics (together with Michael Kremer of the University of Chicago) for their innovative work applying laboratory-style randomized, controlled trials to research a wide range of topics implicated in global poverty. “Super cool”

First-year Jean Billa, one of the students in 14.009, says, “Economics isn’t just about how money flows, but about how people react to certain events. That was an interesting discovery for me.”

It’s also precisely the lesson Banerjee and Duflo hoped students would take away from 14.009, a class that centers on weekly in-person discussions of the professors’ recorded lectures — many of which align with chapters in Banerjee and Duflo’s book “Good Economics for Hard Times” (Public Affairs, 2019). Classes typically start with a poll in which the roughly 100 enrolled students can register their views on that week’s topic. Then, students get to discuss the issue, says senior Dina Atia, teaching assistant for the class. Noting that she finds it “super cool” that Nobelists are teaching MIT’s first-year students, Atia points out that both Duflo and Banerjee have also made themselves available to chat with students after class. “They’re definitely extending themselves,” she says. “We want the students to get excited about economics so they want to know more,” says Banerjee, the Ford Foundation International Professor of Economics, “because this is a field that can help us address some of the biggest problems society faces.” Using natural experiments to test theories

Early in the term, for example, the topic was migration. In the lecture, Duflo points out that migration policies are often impacted by the fear that unskilled migrants will overwhelm a region, taking jobs from residents and demanding social services. Yet, migrant flows in normal years represent just 3 percent of the world population. “There is no flood. There is no vast movement of migrants,” she says. Duflo then explains that economists were able to learn a lot about migration thanks to a “natural experiment,” the Mariel boat lift. This 1980 event brought roughly 125,000 unskilled Cubans to Florida over a matter a months, enabling economists to study the impacts of a sudden wave of migration. Duflo says a look at real wages before and after the migration showed no significant impacts. “It was interesting to see that most theories about immigrants were not justified,” Billa says. “That was a real-life situation, and the results showed that even a massive wave of immigration didn’t change work in the city [Miami].”

Question assumptions, find the facts in data Since this is a broad survey course, there is always more to unpack. The goal, faculty say, is simply to help students understand the power of economics to explain and shape the world. “We are going so fast from topic to topic, I don’t expect them to retain all the information,” Duflo says. Instead, students are expected to gain an appreciation for a way of thinking. “Economics is about questioning everything — questioning assumptions you don’t even know are assumptions and being sophisticated about looking at data to uncover the facts.” To add impact, Duflo says she and Banerjee tie lessons to current events and dive more deeply into a few economic studies. One class, for example, focused on the unequal burden the Covid-19 pandemic has placed on different demographic groups and referenced research by Harvard University professor Marcella Alsan, who won a MacArthur Fellowship this fall for her work studying the impact of racism on health disparities.

Duflo also revealed that at the beginning of the pandemic, she suspected that mistrust of the health-care system could prevent Black Americans from taking certain measures to protect themselves from the virus. What she discovered when she researched the topic, however, was that political considerations outweighed racial influences as a predictor of behavior. “The lesson for you is, it’s good to question your assumptions,” she told the class. “Students should ideally understand, by the end of class, why it’s important to ask questions and what they can teach us about the effectiveness of policy and economic theory,” Banerjee says. “We want people to discover the range of economics and to understand how economists look at problems.”

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Prof. Esther Duflo will present her research on poverty reduction and her “proposal for a global minimum tax on billionaires and increased corporate levies to G-20 finance chiefs,” reports Andrew Rosati for Bloomberg. “The plan calls for redistributing the revenues to low- and middle-income nations to compensate for lives lost due to a warming planet,” writes Rosati. “It also adds to growing calls to raise taxes on the world’s wealthiest to help its most needy.”

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ECONLOG POST

Nov 22 2023

Economics in Everyday Life

Kevin corcoran .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-author-boxes-avatar img { width: 80px important; height: 80px important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-author-boxes-avatar img { border-radius: 50% important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-author-boxes-meta a { background-color: #655997 important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-author-boxes-meta a { color: #ffffff important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-author-boxes-meta a:hover { color: #ffffff important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-author-boxes-recent-posts-title { border-bottom-style: dotted important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-author-boxes-recent-posts-item { text-align: left important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-multiple-authors-boxes-li { border-style: none important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-multiple-authors-boxes-li { color: #3c434a important; } .pp-multiple-authors-boxes-wrapper.box-post-id-69046.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-instance-id-1 .pp-multiple-authors-boxes-li { border-radius: px important; } .pp-multiple-authors-layout-inline ul.pp-multiple-authors-boxes-ul { display: flex; } .pp-multiple-authors-layout-inline ul.pp-multiple-authors-boxes-ul li { margin-right: 10px }.pp-multiple-authors-boxes-wrapper.pp-multiple-authors-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-post-id-69046.box-instance-id-1.ppma_boxes_69046 ul li > div:nth-child(1) {flex: 1 important;}.

By Kevin Corcoran, Nov 22 2023

There are many ways to learn the ideas of economics. One way is through the standard method – read textbooks or attend lectures where ideas are described. But economics is about human action – which means the lessons of economics can also be found in our own lives. Some people claim that basic econ is often counterintuitive, and it indeed may be to some or most people. But as I began to study economics many years ago, I found its lessons extremely intuitive, because the ideas being described were things I had witnessed or experienced throughout my life.

For example, I found it very easy to envision all the ways people adjust their behavior in response to taxes. I grew up in Washington state, very close to the border with Oregon. There were two big tax differences between those states. (Well, probably more than two, but there were two I cared about at that time.) Oregon had a state income tax, while Washington did not. And Washington had a state sales tax, while Oregon did not.

Both of those were often cited as factors in decisions people would make. As people started getting jobs, it was common to find opportunities that were similarly appealing and equidistant, some in Washington and some just over the river in Oregon. When that happened, people would heavily favor finding a job in Washington, because if you worked in Oregon you had to pay Oregon state income tax, even if you weren’t an Oregon resident. (But even though you were an Oregon taxpayer, you were unable to cast any votes in Oregon – taxation without representation!) But it didn’t work in the other direction – friends I had in Portland didn’t feel any extra incentive to find a Washington job, because even if they worked in Washington, they would still have to pay Oregon state income tax.

However, the sales tax difference made a much more frequent impact. Washington’s sales tax in those days was, if memory serves, around 7.7%. This made it very common for people in Washington to put a little extra effort into driving to Oregon to make a purchase, particularly if it was a large purchase. If you needed to buy a new TV or a new couch, why would you voluntarily choose to pay what amounted to an unnecessary 7.7% surcharge on top of your already expensive purchase? I’m sure that over the years, retailers along the border in Washington lost a considerable number of sales to retailers just along the Oregon border, precisely because people would adjust their behavior in response to taxes.

But at the same time, the sales tax issue wasn’t decisive . If you were going to buy a new TV for a thousand dollars, if often made sense to take the extra ten minutes to drive over the Columbia River and buy it in Oregon to save nearly eighty dollars in sales tax. But if you just needed to make a small purchase, the extra time and gas costs of the longer drive meant it wasn’t worth doing to avoid the 7.7% tax rate. And the further you lived from the Oregon border, the larger a purchase would have to be in order to make you willing to do the longer drive in order to save on sales tax. Though I didn’t know the term at the time, this showed me the importance of transaction costs in our decision making. The choice you will make will be in part influenced by the fact that the choice itself carries its own cost.

One other difference between Oregon and Washington gave me a healthy skepticism of “but it creates jobs!” as a justification for some program or regulation . While I lived in the area, and until very recently, it was illegal for you to pump your own gas in Oregon. By law, you would have to hand your cash or credit card to a gas station employee and have him pump your gas for you. I absolutely hated the experience, because it just slowed the whole process down. It was very common to get to a gas station with eight pumps and only two attendants and have to wait several minutes for one to work his way over to you, tell him you wanted to fill the tank, hand him your card, and have him start filling your tank. Meanwhile he’d wander off to another vehicle, your car would finish filling up, and you’d still be left waiting several more minutes before he got back and put the nozzle away and returned your credit card so you could be on your way. Nothing was more productive as a result of these jobs existing – the whole process just became slower and more time consuming. This made it very intuitive for me to see why economists focus on production, not employment. It’s not about how many people are doing stuff, what really matters is how much stuff gets done . Using more people to achieve the same level of production (or less) isn’t how progress is made.

What about you, EconLog readers? Are there any ideas in economics you learned about and immediately recognized from your own life experience? If so, drop some comments sharing what those ideas where, and where in life you saw them in action.

Richard Fulmer

Nov 22 2023 at 12:26pm.

In the U.S. no one haggles over the price of a can of beans or a bag of rice. The pennies we might save aren’t worth the time or the effort. But I’ve been to countries in which people are so poor that a few pennies mean a lot and they do haggle over such things. Here, most of us will still bargain over the price of a house or a car because a few hundred or a few thousand dollars are material to us. However, as we’ve become wealthier, car dealers advertising “no dicker stickers” are becoming more popular.

David Henderson

Nov 22 2023 at 2:22pm.

Nicely done.

I was pondering this on my way to work this morning. I might do a whole blog post on this but this is my quick recollection.

One of the things that most economists, including me, believe is that pay is based on the value of one’s output. On the way to work this morning, I heard a song on my FM channel by a young woman complaining that she was underpaid. I realized how often I hear that. Then my next thought was that even when I was in my teens and working in part-time jobs, I always understood that pay was based on productivity. I never told myself I was underpaid. I would then figure out how to be more productive in a job or, more likely, because job performance was constrained in some ways, how to find a job in which I would be more productive.

Ahmed Fares

Nov 22 2023 at 3:27pm.

“Most of economics can be summarized in four words: “People respond to incentives.” The rest is commentary.” — Steven E. Landsburg, The Armchair Economist

Nov 22 2023 at 5:31pm

Echoing above I would say that both my reading and managing have hit home that incentives matter, with the corollary that it’s not always obvious which incentives are important. There have been times when I misread incentives and times when I asked and people lied to me, so figuring them out is important. Dave mentions compensation and I think he is sort of right but at least in my profession it is also heavily driven by market conditions, basic supply and demand. Output of my midlevels, eg, has increased slightly over the last 20 years but pay has varied pretty widely depending upon local market conditions.

Also on compensation, I remain surprised at how few people understand the concept of total compensation and remain fixated only on salary. Individual financial needs vary so occasionally someone tells me they need the take home and dont care about the retirement plan and other benefits but lots of people dont seem to be able to grasp the idea even after an explanation and bypass much better total compensation to get a small amount of extra salary.

Nov 23 2023 at 11:27am

Today is a good day to talk about complimentary goods. Turkey and dressing, mashed potatoes and gravy, green beans with bacon, bread and butter, whipped cream on pumpkin pie. There are no substitutes…

Happy Thanksgiving!

Creigh Gordon

Nov 24 2023 at 1:06pm.

The real cost of anything is what you have to give up in order to get it.

Applies to leisure/retirement as well as everything else.

Aysha Ayyoob

Nov 25 2023 at 2:15am.

The economics concept which is most relatable to me was relationship between marginal and total productivity in real life .

Law of variable proportion also known as short run production law helps us to envision how high amount of labour in a sector(eg.farmland,factory unit) can lead to decrease in productivity.For eg,If 2 labours are required to operate a machine ,both the labours will work at full capacity and produce an output of 100 units(50 each).suppose two more labours are employed to operate the same machine in the night shift ,then productivity increases to 100 units (total 200 units) but if two more labour are employed for the sake of employment in the morning shift, where already two labours are working ,will reduce productivity and labours will work less than their potential ,therefore TP may increase but MP declines.

Reduction MP is beacuse of many reasons such as- overcrowding→talks and gossiping among the workers →demand to raise wage →low productivity.

I hope it was helpful.

Nov 25 2023 at 3:41pm

The following is a comment from “Economics StackExchange” about the Cobb-Douglas production function:

If one reads the original article by Cobb and Douglas (1928), one will find at the end of page 152 that the authors stress that they took into account two properties that had been theoretically discussed in the past: 1: That production exhibits constant returns to scale, meaning that doubling all inputs will double output. 2: That both production inputs are necessary for production, so output should be zero when either one is zero. To satisfy the 2nd property, they chose the multiplicative form. Given this, to satisfy the first property they had to make the sum of the exponents equal unity, so $a$, and $1-a$. We have $0<a<1$ so that output responds positively to each output. The existence of the constant $A$ in $Q = AK^aL^{1-a}$ takes care of two things: any “units of measurement” issues but also, the average of any other forces that may contribute to output.

A link to the Cobb-Douglas production function article mentioned above (opens in a pdf file):

https://www.aeaweb.org/aer/top20/18.1.139-165.pdf

Grand Rapids Mike

Nov 27 2023 at 9:08am.

Another contrast showing the effect of differences in taxes and regulation between states can be seen by examining the economic condition of the border cities of Illinois and Iowa. Specifically the Quad Cites area, with Rock Island and Moline on the Illinois side and Davenport and Bettendorf on the Iowa side. The Iowa side cities in this area are thriving the Illinois cities not so much.

Comments are closed.

How Much Does $100 Billion in Federal Spending Cos...

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George Shultz, secretary of state in the early 1980s, was also a first-rate economist. As a good economist, he put out a press release showing how little the average taxpaying household paid for aid to El Salvador. As I recall, it was about $34. (I can’t find a source.) Shultz seemed to think that $34 was a small num...

1.1 What Is Economics, and Why Is It Important?

Learning objectives.

By the end of this section, you will be able to:

Discuss the importance of studying economics
Explain the relationship between production and division of labor
Evaluate the significance of scarcity

Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions or societal decisions. If you look around carefully, you will see that scarcity is a fact of life. Scarcity means that human wants for goods, services and resources exceed what is available. Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply. Of course, the ultimate scarce resource is time- everyone, rich or poor, has just 24 expendable hours in the day to earn income to acquire goods and services, for leisure time, or for sleep. At any point in time, there is only a finite amount of resources available.

Think about it this way: In 2015 the labor force in the United States contained over 158 million workers, according to the U.S. Bureau of Labor Statistics. The total land area was 3,794,101 square miles. While these are certainly large numbers, they are not infinite. Because these resources are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.

Introduction to FRED

Data is very important in economics because it describes and measures the issues and problems that economics seek to understand. A variety of government agencies publish economic and social data. For this course, we will generally use data from the St. Louis Federal Reserve Bank's FRED database. FRED is very user friendly. It allows you to display data in tables or charts, and you can easily download it into spreadsheet form if you want to use the data for other purposes. The FRED website includes data on nearly 400,000 domestic and international variables over time, in the following broad categories:

Money, Banking & Finance
Population, Employment, & Labor Markets (including Income Distribution)
National Accounts (Gross Domestic Product & its components), Flow of Funds, and International Accounts
Production & Business Activity (including Business Cycles)
Prices & Inflation (including the Consumer Price Index, the Producer Price Index, and the Employment Cost Index)
International Data from other nations
U.S. Regional Data
Academic Data (including Penn World Tables & NBER Macrohistory database)

For more information about how to use FRED, see the variety of videos on YouTube starting with this introduction.

If you still do not believe that scarcity is a problem, consider the following: Does everyone require food to eat? Does everyone need a decent place to live? Does everyone have access to healthcare? In every country in the world, there are people who are hungry, homeless (for example, those who call park benches their beds, as Figure 1.2 shows), and in need of healthcare, just to focus on a few critical goods and services. Why is this the case? It is because of scarcity. Let’s delve into the concept of scarcity a little deeper, because it is crucial to understanding economics.

The Problem of Scarcity

Think about all the things you consume: food, shelter, clothing, transportation, healthcare, and entertainment. How do you acquire those items? You do not produce them yourself. You buy them. How do you afford the things you buy? You work for pay. If you do not, someone else does on your behalf. Yet most of us never have enough income to buy all the things we want. This is because of scarcity. So how do we solve it?

Visit this website to read about how the United States is dealing with scarcity in resources.

Every society, at every level, must make choices about how to use its resources. Families must decide whether to spend their money on a new car or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or into the school system. Nations must decide whether to devote more funds to national defense or to protecting the environment. In most cases, there just isn’t enough money in the budget to do everything. How do we use our limited resources the best way possible, that is, to obtain the most goods and services we can? There are a couple of options. First, we could each produce everything we each consume. Alternatively, we could each produce some of what we want to consume, and “trade” for the rest of what we want. Let’s explore these options. Why do we not each just produce all of the things we consume? Think back to pioneer days, when individuals knew how to do so much more than we do today, from building their homes, to growing their crops, to hunting for food, to repairing their equipment. Most of us do not know how to do all—or any—of those things, but it is not because we could not learn. Rather, we do not have to. The reason why is something called the division and specialization of labor , a production innovation first put forth by Adam Smith ( Figure 1.3 ) in his book, The Wealth of Nations .

The Division of and Specialization of Labor

The formal study of economics began when Adam Smith (1723–1790) published his famous book The Wealth of Nations in 1776. Many authors had written on economics in the centuries before Smith, but he was the first to address the subject in a comprehensive way. In the first chapter, Smith introduces the concept of division of labor , which means that the way one produces a good or service is divided into a number of tasks that different workers perform, instead of all the tasks being done by the same person.

To illustrate division of labor, Smith counted how many tasks went into making a pin: drawing out a piece of wire, cutting it to the right length, straightening it, putting a head on one end and a point on the other, and packaging pins for sale, to name just a few. Smith counted 18 distinct tasks that different people performed—all for a pin, believe it or not!

Modern businesses divide tasks as well. Even a relatively simple business like a restaurant divides the task of serving meals into a range of jobs like top chef, sous chefs, less-skilled kitchen help, servers to wait on the tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—not to mention the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where it is located. A complex business like a large manufacturing factory, such as the shoe factory ( Figure 1.4 ), or a hospital can have hundreds of job classifications.

Why the Division of Labor Increases Production

When we divide and subdivide the tasks involved with producing a good or service, workers and businesses can produce a greater quantity of output. In his observations of pin factories, Smith noticed that one worker alone might make 20 pins in a day, but that a small business of 10 workers (some of whom would need to complete two or three of the 18 tasks involved with pin-making), could make 48,000 pins in a day. How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves? Smith offered three reasons.

First, specialization in a particular small job allows workers to focus on the parts of the production process where they have an advantage. (In later chapters, we will develop this idea by discussing comparative advantage .) People have different skills, talents, and interests, so they will be better at some jobs than at others. The particular advantages may be based on educational choices, which are in turn shaped by interests and talents. Only those with medical degrees qualify to become doctors, for instance. For some goods, geography affects specialization. For example, it is easier to be a wheat farmer in North Dakota than in Florida, but easier to run a tourist hotel in Florida than in North Dakota. If you live in or near a big city, it is easier to attract enough customers to operate a successful dry cleaning business or movie theater than if you live in a sparsely populated rural area. Whatever the reason, if people specialize in the production of what they do best, they will be more effective than if they produce a combination of things, some of which they are good at and some of which they are not.

Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality. This pattern holds true for many workers, including assembly line laborers who build cars, stylists who cut hair, and doctors who perform heart surgery. In fact, specialized workers often know their jobs well enough to suggest innovative ways to do their work faster and better.

A similar pattern often operates within businesses. In many cases, a business that focuses on one or a few products (sometimes called its “ core competency ”) is more successful than firms that try to make a wide range of products.

Third, specialization allows businesses to take advantage of economies of scale , which means that for many goods, as the level of production increases, the average cost of producing each individual unit declines. For example, if a factory produces only 100 cars per year, each car will be quite expensive to make on average. However, if a factory produces 50,000 cars each year, then it can set up an assembly line with huge machines and workers performing specialized tasks, and the average cost of production per car will be lower. The ultimate result of workers who can focus on their preferences and talents, learn to do their specialized jobs better, and work in larger organizations is that society as a whole can produce and consume far more than if each person tried to produce all of their own goods and services. The division and specialization of labor has been a force against the problem of scarcity.

Trade and Markets

Specialization only makes sense, though, if workers can use the pay they receive for doing their jobs to purchase the other goods and services that they need. In short, specialization requires trade.

You do not have to know anything about electronics or sound systems to play music—you just buy an iPod or MP3 player, download the music, and listen. You do not have to know anything about artificial fibers or the construction of sewing machines if you need a jacket—you just buy the jacket and wear it. You do not need to know anything about internal combustion engines to operate a car—you just get in and drive. Instead of trying to acquire all the knowledge and skills involved in producing all of the goods and services that you wish to consume, the market allows you to learn a specialized set of skills and then use the pay you receive to buy the goods and services you need or want. This is how our modern society has evolved into a strong economy.

Why Study Economics?

Now that you have an overview on what economics studies, let’s quickly discuss why you are right to study it. Economics is not primarily a collection of facts to memorize, although there are plenty of important concepts to learn. Instead, think of economics as a collection of questions to answer or puzzles to work. Most importantly, economics provides the tools to solve those puzzles.

Consider the complex and critical issue of education barriers on national and regional levels, which affect millions of people and result in widespread poverty and inequality. Governments, aid organizations, and wealthy individuals spend billions of dollars each year trying to address these issues. Nations announce the revitalization of their education programs; tech companies donate devices and infrastructure, and celebrities and charities build schools and sponsor students. Yet the problems remain, sometimes almost as pronounced as they were before the intervention. Why is that the case? In 2019, three economists—Esther Duflo, Abhijit Banerjee, and Michael Kremer—were awarded the Nobel Prize for their work to answer those questions. They worked diligently to break the widespread problems into smaller pieces, and experimented with small interventions to test success. The award citation credited their work with giving the world better tools and information to address poverty and improve education. Esther Duflo, who is the youngest person and second woman to win the Nobel Prize in Economics, said, "We believed that like the war on cancer, the war on poverty was not going to be won in one major battle, but in a series of small triumphs. . . . This work and the culture of learning that it fostered in governments has led to real improvement in the lives of hundreds of millions of poor people.”

As you can see, economics affects far more than business. For example:

Virtually every major problem facing the world today, from global warming, to world poverty, to the conflicts in Syria, Afghanistan, and Somalia, has an economic dimension. If you are going to be part of solving those problems, you need to be able to understand them. Economics is crucial.
It is hard to overstate the importance of economics to good citizenship. You need to be able to vote intelligently on budgets, regulations, and laws in general. When the U.S. government came close to a standstill at the end of 2012 due to the “fiscal cliff,” what were the issues? Did you know?
A basic understanding of economics makes you a well-rounded thinker. When you read articles about economic issues, you will understand and be able to evaluate the writer’s argument. When you hear classmates, co-workers, or political candidates talking about economics, you will be able to distinguish between common sense and nonsense. You will find new ways of thinking about current events and about personal and business decisions, as well as current events and politics.

The study of economics does not dictate the answers, but it can illuminate the different choices.

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Exploring the Economics of Everyday Life

Google Classroom:

Sahil L., a 12 th grader at The Emerald Heights International School in Indore in India’s Madhya Pradesh state, has a deep fascination for economics – not on a macro level, but in terms that he can relate to as a teenager. “When I first discovered economics, I wasn’t interested in knowing about the bilateral economic ties between two nations, but I would have definitely loved to know about how monopolies practice price discrimination and how it affects my decisions as a consumer ,” says Sahil, who is 17.

Still, when Sahil leafed through business publications at his school library, often he couldn’t find satisfying explanations for various economic concepts and the fundamentals that drive business activities. Questions persisted in his mind about issues like the impact of India’s demonetization of high-value currencies that took place about a year ago or how government policies impacted certain industries.

At the Grassroots Level

Sahil saw a market need and he found a way to meet it. Last year, he launched a biweekly magazine that he calls EcoGyaan (the word “gyaan” in Hindi means knowledge), with the tag line “The Economic Explorer.” Launched in July 2017, you can also subscribe to the magazine online at www.ecogyaan.com. “Indian students lack exposure to research and self-thought,” says Sidharth Singh, Emerald Heights’ principal, adding that he whole-heartedly encouraged Sahil when he suggested the magazine idea.

Published regularly with eight-to-10 pages each, EcoGyaan has covered issues like how a bank could protect itself from a liquidity crisis; regulatory policies that govern street food; and how the mobile payments industry works. Each issue also includes one economic term that is explained in depth, like monopoly , liquidity or GDP .

“I wanted to know more about the economics of industries that are integral to fulfilling my daily needs and read about policies that affect me directly at the grassroots level,” says Sahil. He sensed a need for a financial magazine that covers topics “that are relevant to people in real life and help them connect their observations to what they read.”

Sahil produces EcoGyaan with minimal help from friends, and gets it printed locally from his own funds. He has priced each issue at Rs. 30 ($0.50), which is roughly the cost of production. EcoGyaan has 110 subscribers; its total print order is 150 copies, and both are growing with each edition. Plans are to donate the profits to charity.

In the research for his articles, Sahil also conducts the occasional interview, such as one with a vendor of street foods (ready-to-eat foods sold from portable food carts or trucks), or another with the head of a non-governmental organization for an article on NGOs. He sometimes attempts to give his stories global comparisons, such as in the street-food article, where he referred to Thailand’s regulatory policies governing that sector.

Sahil also has policy prescriptions in some cases. For example, he says of the street food industry: “Although these are mostly illegal establishments, they should be included in the formal economy because they provide a huge boost to the GDP of a country.” He cites references to the informal economy in national income statistics to support his point. He advocates business model incentives at two levels here: for street food vendors to instill hygiene and sanitation principles, and also for government agencies to include them in the formal economy.

Economist in the Making

While he may not know exactly where his life after high school will take him, Sahil – who wants to study business in the U.S. – could easily be called a budding economist .

First and foremost, an economist studies the economy . The economy is the financial foundation upon which our society is structured. It involves producing, exchanging, distributing and consuming goods and services. When you buy an iced latte and chocolate-filled croissant each morning, you are contributing to the economy. Selling an autographed baseball on eBay? That’s the economy. Working at Shop-Rite three days after school? That’s the economy. Socking money away in your savings account? You got it — the economy.

According to the U.S. Bureau of Labor Statistics, an economist studies the production and distribution of resources, goods and services by collecting and analyzing data , researching trends and evaluating economic issues. Economists have all kinds of jobs, such as professors, government advisors, consultants, and private sector employees, and they can specialize in various disciplines, including health, gender, the environment, education and immigration.

Employment of economists is projected to grow 6% from 2016 to 2026, about as fast as the average for all occupations. Job prospects should be best for those with a master’s degree or Ph.D., strong analytical skills and experience using statistical analysis software. People rely on economists to let them know if the economy is improving or heading for trouble. Economists can study factors related to the economy, like jobs, interest rates, the stock market and taxes.

A quick look at economists in the news this week suggests the broad scope of their responsibilities. Bank of Singapore chief economist Richard Jerram said the global economic recovery will benefit Singapore as a trade-dependent economy and regional financial hub; Mark Zandi, chief economist at Moody’s Analytics, reported that the U.S. job market is “red hot, with broad-based job gains across industries and company sizes;” and Ashima Goyal, a member of the Prime Minister’s Economic Advisory Council in India, concluded that the Indian Central Bank’s tendency to overestimate inflation has cost the economy.

During a November 2017 interview at New York University’s Stern School of Business, Janet Yellen, the outgoing chairwoman of the U.S. Federal Reserve, explained that she decided to be an economist while an undergraduate student at Brown University. “I always liked math, but then I discovered economics,” she said. “It’s a field that does use rigorous analytical techniques, empirical methods and modeling that requires math. What I loved about economics is that it is also a field that has an impact on and is concerned with social welfare and economic well-being. So, it was a combo of being about people and their lives…and it used math and reasoning.”

Learning about economic concepts can help you to understand the news, make financial decisions, shape public policy and see the world in a new way. This reflects Sahil’s mission for EcoGyaan, which, with his school’s support, he hopes to develop beyond the hobby phase. He says, “ One of the most important things I have learned as part of the journey is to have the curiosity to study the economics of every day happenings around me and learn more about the short-term and long-term implications.”

Sahil Lalwani advocates that street foods should be included in the formal economy because they provide a huge boost to the GDP of a country.

Conversation Starters

How might economics help you see the world in a new way?

The article introduces job prospects for economists. Would you like to become an economist? Share your perspective in the comments section of this article.

8 comments on “ Exploring the Economics of Everyday Life ”

Just this summer, I was volunteering at an institution that teaches non-Mandarin-speaking children Mandarin. The Mandarin teacher designed an activity, where children buy snacks from the supermarket and then sell them to the other native-mandarin-speaking children in the camp. The purpose of this activity was to put the children in a Mandarin-speaking environment and push them to speak Mandarin. However, in my eyes, it was just a perfect and fascinating mini economic model! There is the concept of supply & demand, there are oligopoly, inflation, and many other economics concepts coming into real life.

We are talking on a microeconomic scale, the sale of snack is an industry and the. The beginning of this model is the supermarket, and they are like factories that produce the output. However, it does not play an important part in this model because it is not a variable that I could control. Also, the main actors are my campers and Chinese campers.

Me and my partner, their teachers, acted as both the bank and the government. We printed coupons for the Chinese campers as a substitute for real money and acted as a regulator for policies and prices. Our campers were split into four groups, each given 100 Yuans (Chinese currency name) to buy goods from the supermarket. These four firms in the industry clearly formed an oligopoly in terms of market structure. There is a couple of evidence to prove that, for example, there are only 4 firms dominating the industry, they sell differentiated and identical goods (similar snacks), and there is a significant barrier of entry into the industry. As for the consumers, we printed and distributed 100 coupons per class every time our campers import 100 Yuans worth of goods, to 7 classes with an average of 20 people each class. Because the money supply is not very much when distributed to each camper, they were encouraged to buy the goods together and share.

I am really interested in how the supply and demand of the firms impact the price of the industry. So I observed.

What I didn’t take into consideration is that the children did not know anything about market competitions, and they just simply don’t have the concept of “trying to make profit” in their mind. There are too many missing factors of the market in this model. Causing them to set the price for each good too low (about 2 Yuans on average), also because the consumers had a large amount of money altogether, the goods were bought out too soon. Supply more than demand —> Shortage. I started to think, how can I make this work? First, I should make sure that there is no shortage or surplus for the market, and then I could test out how the demand curve works in an oligopoly.

I communicated with the Mandarin teacher and asked her to talk to the children about setting the price higher to make supply and demand reach equilibrium. I am aware that no one could actually draw a graph of supply and demand for the firms to help them to set the price, the only way for them to know what price to set, is to test it out.  They had three chances to go to the supermarket and import goods to their student shops, they have already used one chance, so they have two left. The second time, they set an average price of 6 Yuans each good, then caused a surplus as they couldn’t successfully sell out all the goods. Also because they have leftover goods from the second day, they have an extra day to sell out these goods. They lowered their price to 4 Yuans. This time, they sold all their products with few consumers left in the line. The third time, all firms started with an average price level of 4 Yuans. Suddenly, one firm decided to lower the price by 1 Yuan as a promotion method, they advertised in the entire cafeteria about this news. Just in a while, many consumers turned to that firm. The other firms saw their costumers moving to that firm. They also decided to lower the price.

I was fascinated by this, and it actually follows the law of oligopoly! But unfortunately, no firm decided to raise the price again, I didn’t get to witness the other part of the oligopoly demand curve.

Another problem we faced was the amount of money that we are printing and distributing. We didn’t know how much money we should distribute and some campers lose their money then asks for more. We were afraid that by letting too much money flow in the currency might cause inflation, which will make things much more complicated. We didn’t technically figure out a method to solve this, but it worked pretty well with our method of distributing.

In a nutshell, this is an amazing experience for me, discovering the economics of everyday life!

What are some of the ways Lalwani explored these economics? What would you like to learn more about? “Sahil saw a market need and he found a way to meet it.” I want to learn more about marketing management How might economics help you see the world in a new way? It helps you take care of money.

Sahil L. says, “I wanted to know more about the economics of industries that are integral to fulfilling my daily needs.” Can you give an example from the article? What are some of the ways Lalwani explored these economics? What would you like to learn more about? He began by finding publishing the daily news to learn how the economy works and why it does certain things such as increase or decrease. I would like to learn more about how these certain topics increase or decrease.

How might economics help you see the world in a new way? It might help you take the numbers into consideration and be better at managing your money. The article introduces job prospects for economists. Would you like to become an economist? I don’t think I would because I would like to explore more of the broker side of business.

Sahil L. says, “I wanted to know more about the economics of industries that are integral to fulfilling my daily needs.” Can you give an example from the article? What are some of the ways Lalwani explored these economics? What would you like to learn more about? Some ways Lalwani explore are publishing the daily news to gain better knowledge of economics, and the system of economics. He also acquired knowledge of why the idea of increasing and decreasing exists. I would like to learn more about how economics are blended in our life and how to start analyizing the economics in our daily life.

How might economics help you see the world in a new way? Economics will help me see the world in a new way. By learning about economics, I will be able to enhance the world in a different aspect. I will be able to make rational decisions on needed situations, understanding about incenteives will help me understand the background of other people and predict the answers they will make.

The article introduces job prospects for economists. Would you like to become an economist? I would like to become an economist. It would be intersting to learn and work in the fields of finance and analyzing datas. Moreover, working as a economsits would support my banking skills and my own financial judgement.

“I wanted to know more about the economics of industries that are integral to fulfilling my daily needs and read about policies that affect me directly at the grassroots level,” So Lalwani explored and created a magazine that covers topics “that are relevant to people in real life and help them connect their observations to what they read.”

What would you like to learn more about? I would like to learn more about money management during inflation.

How might economics help you see the world in a new way? It helps me see what i am exactly putting my money into/buying and what goes around comes around.

I wanted to know more about the economics of industries that are integral to fulfilling my daily needs.” Can you give an example from the article? What are some of the ways Lalwani explored these economics? What would you like to learn more about? He began by finding publishing the daily news to learn how the economy works and why it does certain things such as increase or decrease. I would like to learn more about how these certain topics increase or decrease.

1)In order to understand how the economy functions and the reasons behind various events like increases and decreases, he started by looking up the daily news publications. I’m interested in finding out more about the rise or fall of these particular subjects.

2)You might be able to analyze the figures and improve your money management as a result.

3) I would not like to become an economist because I would rather go into finance.

I was interested in learning more about the economics of sectors of the economy that are essential to meeting my basic necessities. Could you provide a sample from the written piece? What methods did Lalwani use to investigate these economics? About what would you like to know more? In order to understand how the economy functions and the reasons behind various events like increases and decreases, he started by looking up the daily news publications. I’m interested in finding out more about the rise or fall of these particular subjects.

In what ways may economics broaden your perspective on the world? You might be able to analyze the figures and improve your money management as a result. The article presents economists’ employment opportunities. Do you want to work as an economist? Since I’d like to learn more about the trading side of business, I doubt I would.

Economics and Its Meaning in Everyday Life Research Paper

Introduction, modern economics, profit maximisation, social benefit.

Economics is the social science of making sufficient choices or decisions and studies how people interact in their society economically. This paper introduces the subject of economics and unfolds what it is all about. We live in a society where economics is a valuable need in order for us to understand and handle any problems that may occur in the future. The basic economic problem is scarcity, where people’s wants and needs are unlimited. Every time a need is satisfied, a new need is then created thus, creates the unlimited wants and needs of the human characteristic. The problem of scarcity results in allocation, which is the process of choosing needs that will be gratified and how many resources we will use in order to satisfy them. Because there are so many wants waiting to be satisfied, there are only so many resources to fulfill those wants. Limited resources are the condition of there not being enough resources to fulfill all wants and needs.

Since economics is all about making choices, people must understand the cost and benefits of any choice in order to make competent choices. Opportunity cost and Opportunity benefits guide the decisions process of individuals and countries and determine the goods to which they are going to be produced. However, Opportunity cost is the option that you must give up when you make a choice, and opportunity benefit is what you gain by making a certain decision. An example of opportunity cost and opportunity benefit is assumed one night you have a stack of homework waiting for you to do, but when your parents get home, they demand that you go out with them to eat dinner and catch a flick afterward. Yet you really want to do your homework and study, but you give up your education time to spend the night with your parents. Your opportunity cost of this is what you give up, and that is your study time; however, you do gain a benefit from giving up your homework, and that is a movie and a casual dinner with your parents.

Every society has basic economic questions, and when responding to these questions, societies must balance the needs of individuals with the needs of society together. The subject Economics is divided into two separate branches: microeconomics which examines the choices of individuals regarding one product, one firm, or one industry, and macroeconomics examines the conduct of the whole economy at once. Everything in life has a theory; in economics, the importance of theory is a simplified description of reality. The economic theory helps to understand the economic systems, which are the combination of social and individual decision-making it uses to answer the three economic questions. Economist uses an ideological tool called a budget constraint that is the mixture of goods that can be acquired although it is given a limited amount of income. A person goes through life they will make economic decisions as a consumer, as a worker, and as a citizen that will make an understanding of economic theory an important part of everyday life. (Cubitt, 2005).

Countries such as the United States use a variance of approaches in order to answer the basic economic questions. A market economy is buyers and sellers and is the state of trade as determined by prices, supply, and demand. The question of what to produce is decided by individual consumers and producers in the marketplace by using the price system. A command economy is all about government planners deciding what is produced and available for sale. A traditional economy is where prices are set because of holidays. A mixed economy is a combination of a market, command, and traditional economy. Although the U.S. has a great economy, the main economic problem still lies in our hands. Scarcity and choice exist in all economies. However, like our society, other societies use different combinations of individual and social choices to allocate resources.

Modern economics vs. political economy, as it used to be called-dates back to1776. It begins with the American Revolution. A man named Adam Smith, a Scottish philosopher, published a book called Smith’s work is considered the first example of modern economics. In some places, Smith is most famous for suggesting that businesses always try to monopolize markets and raise prices. Economists credit Adam Smith’s theory of the invisible hand – the idea that a market economy will operate so that no one can be made better off without making someone else worse off. It is as if an invisible hand is guiding the markets when in reality, the markets merely reflect the activities of those trading in them.

When prices for some widely consumed good or service surge or when some company s profits appear to reach stratospheric levels, the popular press seems to return to St. Augustine and ask what is the just price. Others maintain that economics began much, much earlier. Economics figures in most national elections. John Kennedy was elected during the recession that plagued the prior administration; the recession ended in the second month of Kennedy s term as he demonstrated a combination of timing and luck matched by few Presidents. Franklin D. Roosevelt s landslide victory in 1936-based on his efforts to turn back the Great Depression- set the course for the next several decades of U.S. politics. The economy is telling us what s happening and what could happen next. To understand the economy, you have to look at how the economy is measured, scaled, and gauged. How big, rich fast-growing it is. The economy in the United States and increasingly throughout the world is organized into markets. Markets are where we trade things- someone s labor, time, and effort for his wage; or hard-earned dollars for a car.

Markets are rather old-maybe as old as civilization itself. Markets are crucial to understanding the economy. They include much more than the stock market, although that one is quite interesting. Markets exist for almost anything-time and labor, art, cars, things we make, and services we buy. Most markets have common elements, patterns that make buying a car and getting a second opinion before surgery almost the same thing. As the axiom goes, the only constant changes. In the economy, changes occur all the time. They are what shift prices ad gives rise to opportunities.

Economics is the rules of the game, how we organize society. Most of what we see as important in everyday life is organized by the economy. On a day-to-day basis, economics has to do with what kind of job we have or don’t have; with how much money we can earn; with what things cost; with whether we can save and invest enough for a comfortable future; with how much we need tomorrow and with how well off our children will be in coming years. Economics is why we have jobs. Why we work, why we earn incomes, why money matters, and why markets are important. Economic ideas contribute to the way our society is organized. That the kind of organization we have today has evolved gradually doesn’t t make the principles behind it any less important. It evolved through history to the current arrangement and is still changing and evolving. The social fabric is always likely to be changing. Many of the principles behind the current organization depend on economics and include many ideas.

Principles of economics include Private property- we can own land, houses, tools, books, and all kinds of other goods and use them, or dispose of them, as we wish. Another is a job. We have jobs and earn income with our labor. Human rights-we do to own other people and don’t have pre-emptive rights to someone else s labor and property. Markets- the way we exchange private property or exchange labor for income is through a voluntary bargaining process called a market. We use money as a way to store wealth and to buy and sell things we own, including our own labor.

The thing that distinguishes markets and money from other elements of the economy is that they are a little more fundamental. In almost any society based on private property, both money and markets are present. Not much private property is needed to give rise to markets and money just enough so that people have some things to exchanges and need a way to keep track of how much money they have. Trading has been practiced since before recorded history. Ancient tribes traded with one another to get essential tools that were hard to make locally. (Samuelson, 2005) Today economist speaks of gains form trade.

The most misunderstood part of economics is in public debates. Recently the political arena has echoed with arguments over the budget deficit and the national debt. We hear every possible opinion, from claims that we are about to drown in our own red ink, to suggestions that we ignore the debt, to claims that cutting our taxes will lead to larger tax revenues for the government and a drop in the deficit. Some of these arguments are involved; the difference between the national debt and the budget deficit is rather straightforward. Each year the government collects taxes and spends money. When expenditures exceed revenues, the government is left with a gap. This gap is the deficit.

Expenditures cover a wide range of items, including social security benefits, Medicare and Medicaid payments, salaries of government workers, foreign aid, and government purchases from paper clips to jet planes. The numbers and reports on the national debt have another important complication. The government saves some revenues by investing them in Treasury bonds. Measurement of economics has a venerable history. For a long time, people thought the only thing to economics was measuring or counting. Forecasts almost always require numbers- at times to provide a forecast that really gets specific, at other times to make a vague forecast look specific enough to be worth paying for. (Fontaine, 2005) Sometimes economics drives the way we measure. As we look at the unemployment rate, deciding what we measure often involves understanding the economy and its various sectors and markets larger.

Some longer-term issues related to the deficit are also legitimate concerns. Over the last few decades, the proportion of total income that America saves and invests in forth future has declined. If we invest less today, there will be less wealth tomorrow. One reflection of the decline in savings is the rise of the deficit. Simply worrying about the deficit, some politicians argue, is the wrong response. Increasing savings is the right response. Japan, in its peak years of economic growth, had far more savings and a far larger than in the United States.

One of the more recent developments in mathematics, physics, and related sciences is a collection of studies alternately referred to as complexity theory, self-organization, and chaos theory. While some commentators may argue that economics has a special claim on chaos, there are interesting parallels between many of these studies and economics. (Keen, 2004) One of the ideas behind these theories is that at times a collection of objects- animals, computer programs, people, or almost anything else-will seem to become very well organized without any systematic communication or planning.

The economy surrounds us, and it plays a large part in our lives. It has more impact than the weather on how we live and how well we live. Economics runs through other parts of our lives as well. If the economy is in a recession or a depression, it hits a lot of people. The economy helps us keep track of the nation’s standing. The economic system has grown since Adam Smith s book. Right now, since the economy is good, it is easy to get jobs. During a recession or a depression, the economy is the indication of what is going wrong and what to fix. Everyday life is circled around the economy. The different kinds of markets provide a different understanding. The stock market also is an indicator of the economy. The stock market shows the sales and wealth of the different markets around our country. If the economy is good, we know it. It shows everywhere, and politicians don’t hesitate to base an election on how well they did or how awful the economy was under another politician. It will make or break the politician.

All of the businesses have common factors. They all provide products in the form of goods or services. For example, books, food, fitness training, utilities, etc., some of the products provided by businesses are needed by customers. They are, in essence, providing necessities, for example, basic food and clothing. Some businesses, on the other hand, provided products that customers can be persuaded to want through advertising. For example, luxury food, fashion clothing, or a holiday, etc. A business may therefore be defined as; an organization that provides goods or services which satisfy customer needs and wants.

The objective of profit maximization brings with it an imperative question to be considered in great detail; should businesses maximize profits? Businesses have a social responsibility. They need to aim to reduce pollution, improve safety levels, and preserve jobs, etc. firms, in the effort to maximize profits, go against many social and ethical issues, for example, if materials needed by a firm can be found cheaper abroad, profit-maximizing firms will by from countries whose political regimes, the U.K. public may not approve of. It is argued, however, that in order to pay attention to aspects, such as pollution levels, and preservation of jobs, etc., the firm needs to be financially stable. In other words, they need to be making a profit. The importance of profit is just one aspect of the profit-maximizing position of a firm, which adopts the profit-maximizing objective. (Ernst, 2007).

In a short conclusion to the profit-maximizing objective of a firm, one might suggest that there is only one valid definition of a business’s purpose: to create a customer. Profits, then, are the results of being in business. They test how efficiently a business has created a customer in terms of the cost to the business in relation to the revenue gained through the customer.

The size of a firm displays a close correlation to sales revenue. As such, sales revenue is often considered a surrogate. It is said that although high levels of profit bring with it benefits to the owners or shareholders of a firm, high levels of sales revenue, on the other hand, brings with it benefits for managers, for example, higher levels of income.

One major difference to note between profit maximization and revenue maximization is the term to which the objectives are set. A firm whose overall objective is profit maximization is said to have such an objective set long term. In other words, the objective is hoped to be met over a five-year period. A firm whose overall objective, on the other hand, is revenue maximization, is said to have such an objective set short term, the objective is hoped to be met over a two-year period. (Fullbrook, 2004) Perhaps another significant difference to note is that of by whom such objectives have been set. Managers had both the ability and motivation to pursue objectives other than Profit Maximisation, and as we will see soon, this ability and motivation of firm’s managers extend to them being able to pursue Non-Maximising objectives, for example, Social Benefit. Similarly to Revenue Maximisation, controllers of a firm are more interested in objectives that satisfy them, such as Salary, prestige, and status, and job security. (MacKenzie, 2003).

As with those who commit to Revenue Maximising objectives, those who set Growth Maximisation as their objective do so with consideration of what growth the owners in the firm want to see, such as profit, sales, and market share. These different sets of objectives are reconciled by concentrating on the growth of the size of the firm, which in turn will bring with it high salaries and status for managers and larger profits and market shares to keep the shareholders happy. As with the Profit Maximising objective, growth maximization has to limit factors or constraints, both managerial and financial. Finding a product or a market to expand can prove problematic to the management team of a firm. Having found an area of expansion, the management team also faces the limitation of remaining in control of such expansions.

In order to become a growth-driven company, investments need to be made. The funds required for such investments are ever-increasing and can be obtained by either internal investments by the use of retained profit, or external investments funded by borrowing, the latter creating further liabilities for the firm. (Amos, 1994) If either of the aforementioned means of investments is not closely controlled, the risk of either takeovers or shareholder revolt is increased, which intern would have a knock-on effect on the job security of management. Ensuring that the growth of demand is matched equally by the growth in capital supplied can satisfy the above constraints. Control of the leverage revenue will help to keep the level of borrowing in check. Control of the liquidity ratio can prevent a firm from becoming insolvent. Finally, via the retention ratio, profits can be distributed sufficiently in order to keep shareholders happy.

Businesses have a significant contribution to social welfare; we visited this idea earlier when discussing the profit maximization objective of a firm, where one stated the importance of pollution reduction and job security etc. By paying attention to the social welfare of consumers and employees, those within firms will benefit. Namely, suppliers of capital, labor, and other resources that have in the past received substantial returns for their contribution to the improvement of social welfare. Consumers can also benefit where social benefit is the key objective of a firm, through increasing the quality and quantity of the goods and services available to them for consumption.

The public can, in many ways, be the backbone of a firm. They state that the very existence of certain firms is a result of public consent and that as such, those firms that are amongst the most successful tend to be those that exercise socially responsible behavior. It is said that Social Benefit is not a maximizing objective because, in order to be an objective, it would be required to be measurable. Rather, the social benefit is considered in terms of what combinations of goods and services should be produced? How many goods and services should be provided? And finally, how they should be distributed.

There are five main maximization objectives of a firm. You will have noticed throughout the descriptions a mention of the differentiation between managers and owners of a firm. Most large firms tend to be run by professional management teams rather than the owner of the firm. As such, conflicts in the interests or direction of the firm can and do happen. Such conflicts occur as a result of differences between the objectives of the owners and of the managers, also referred to as controllers. The main aim of the owner of a firm is that of maximization of the overall value of the firm, whether that is maintained through profit maximization, revenue maximization, management utility theory, company growth, or indeed social benefit.

The above conflicting interests of a firm’s progression can be better defined as the principal-agent problem, whereby objectives, different to those of the principle, also referred to as the owner, are pursued by the agent, also referred to as the controller or manager. The problem or conflict occurs when the principle has difficulty enforcing their contracts upon the agent or when the monitoring of the agent to verify that they are furthering the principle’s objectives becomes unjustifiably costly.

In economics, profits are not merely an objective; they are, in fact, the very reason for the existence of the business enterprise. The statement alone opens discussions regarding the existence of a firm. For Example, A charity shop, by its very nature, does not thrive on profit as a means of existence, rather, it relies on the generosity of the general public, and therefore it would be fair to suggest that the objective of most charity shops is a social benefit. The nature of a business, its size, location, and management model will all together determine the route to which the company wishes to follow. Thus the objectives it will set. When looking into any business, large or small, one will see that no single decision is clear, there are many clouds surrounding the smallest of decisions, and so the analysis of firms, and in particular, the objectivity of a firm, cannot be made in black and white, there is simply too much about the organization, macro and microeconomics, politics and social factors to consider, all of which are ever-changing.

Amos, Orley. Economic Literacy . Hawthornel, New Jersey: Career Press, (1994).

Cubitt, Robin (2005) “Experiments and the Domain of Economic Theory,” Journal of Economic Methodology 12: 297-210.

Ernst, Z. (2007) “Philosophical Issues Arising from Experimental Economics”, Philosophy Compass, Blackwell.

Fontaine, P. and R. Leonard (2005) The Experiment in the History of Economics London: Routledge.

Fullbrook, Edward, What’s Wrong With Economics, Anthem, (2004).

Keen, Steve, Debunking Economics, Zed Books, (2004).

MacKenzie, D. F. Muniesa and L. Siu (eds.) (2003): Do Economists Make Markets? On the Performativity of Economics. Princeton: Princeton University Press.

Samuelson, L. (2005) “Economic Theory and Experimental Economics”, Journal of Economic Literature 43: 65-107.

Understanding Monopoly: Market Dynamics and Profit Maximization
Disney Resort in California: Profits Maximization
The Walmart Firm’s Funding Strategies for Growth Maximization
The Synergy Between Capitalism and Democracy
"The End of Oil" by Paul Roberts
Pitt County: Urban Economics and Export-Based Theories
Marx and Weber in Relation to History: Materialism and Existential Idealism
Reductionist Effect in Macroeconomics
Chicago (A-D)
Chicago (N-B)

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ECONOMICS IN EVERYDAY LIFE: BEYOND THE BOOKS

When the word ‘Economics’ is thought about, what generally comes in mind is GDP, production, unemployment, central bank and government’s measures to sustain or support the economy. A common misconception is that economics is applied only at the macro level, that is to say, the economy of nations, the world economy and by corporate firms in the business world. These are the only areas to implement the knowledge of economics. But that is not true. It is much a part of our daily lives. Alfred Marshall, in his book Principles of Economics (1890) , wrote: “Economics is a study of mankind in the ordinary business of life”. In fact, it is defined in basic terms as “the study of how society allocates its scarce resources efficiently”. Economics deals with the phenomenon of decision-making. Some of the situations involve money but most of them do not. The study of economics bloomed by the urge to understand and improve the decision-making at the individual household level. Macro-economic analysis came into the picture much later after the Great Depression during the 1930s. Issues like these of inflation, unemployment , recession etc. were investigated around this point of time.

Economics has applications in the most intrinsic instances of our lives. The following article discusses some examples of economic theories and concepts finding functionality in our day-to-day lives.

TRADE-OFFS AND OPPORTUNITY COST

The most basic concept of economics is the idea of trade-offs. Resources are limited. The money we have in our wallets is limited. We all have got 24 hours in a day. Even the time we have to ourselves is also limited. Evidently, it is not possible to have or do everything we want. Therefore, we face trade-offs. To acquire something we like, we have to give up something else that we also like.

Governments face trade-offs between using tax revenue to repay the national debt v/s spending it on improving the infrastructure of healthcare and education. Another famous example is a trade-off between “guns and butter”. That is, spending on military assets to protect the country borders v/s spending on consumer goods to raise the living standard of its citizens.

Similarly, we all face trade-offs in our daily lives. For example, whether to devote our next one-hour studying or watching Netflix? Whether to spend our savings on a vacation or buy a new car? Whether to work at a part-time job or focus on our college study?

The fact that we confront trade-offs is not enough to zero-in on a prudent decision. We must be well aware of the “opportunity cost” of every alternate course of action. Opportunity cost is described as what has to be given up to obtain an item. To spend one hour watching Netflix, we have to give up one hour of intellectual enrichment. To go on a vacation, we have to give up the brand-new car. To earn extra spending money through part-time, we have to give up studying which might earn us better grades.

THE THEORY OF CONSUMER CHOICE

The theory of consumer choice analyses how a person allocates his/her resources, that is, income between two goods. They are applied to compare the consumption pattern of the two goods simultaneously.

INCOME EFFECT AND SUBSTITUTION EFFECT

The impact of the change of price of any product can be classified into two effects, namely, income and substitution effect. Income effect says that if the price of one good falls, the consumer has greater purchasing power. In effect, they are richer than before. Hence, the consumption of both the goods will increase. On the contrary, there is a substitution effect which has a different way of approaching the situation. If the price of one good fall, it is now cheaper than the other product. So, our rational self will tell us to buy the cheaper good more than before while reducing the consumption of the other (apparently more expensive) item.

These concepts are generally used in predicting the consumption pattern in response to price fluctuations both by corporate firms in sales as well as the government to incentivise the public.

This theory of consumer choice also finds application in our day-to-day lives.

It can be applied to know how a person allocates time between income(work) and leisure. When we get a pay hike, we might think that a handsome amount of money can be earned if we spend more time working and sacrifice a few hours of leisure. So, income increases substantially while leisure time decreases slightly. This is an example of the substitution effect.

On the other hand, one might also think that because their salary has increased, they can still earn more than before even if they work for lesser hours and spend more time in leisure activities. So, our income, as well as leisure time, increases in this case. This is an example of an income effect where the consumption of both the goods, that is income and leisure, goes up.

Andrew Carnegie was an American steel industrialist who became the richest man in the late 19 th century. He warned that “the parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and tempts him to lead a less useful and less worthy life than he otherwise would.” Carnegie perceived the income effect to be much stronger than the substitution effect on labour supply. Not much surprisingly, he gave away most of his fortune to charity during life as well as at his death.

There is yet another implementation of consumer choice theory other than work v/s leisure.

It is also applied while deciding how much of income to be consumed today and how much to save for the future. The amount one will save depends on the interest rate.

When the interest rate rises, we may tempt to save less than before. Nevertheless, that smaller amount will generate larger interest than earlier. Our present consumption will rise and the portion of our income that we save will fall. In contrast, we will want to save more, expecting to generate even greater interest for our future. Current consumption will be lesser than the prior one.

READ: Economics for Beginners: An Introduction to Concepts and Applications

BEHAVIOURAL ECONOMICS

Behavioural economics is the study of the economic decision-making process and how it is influenced by psychological, emotional, cognitive, social and cultural factors. This is a relatively new field of study as counters the traditional assumption in economics that all individuals are rational and make decisions aimed at maximising utility.

GAME THEORY & THE PRISONER’S DILEMMA

Game theory is the analysis of strategies in a competitive situation where one player’s (participant’s) outcome is significantly affected by other player’s choice of actions.

The prisoner’s dilemma is the typical example used to describe a game (competitive situation) where individuals are inclined not to cooperate even when the results align with their mutual best interests. It was originally formulated by Albert W. Tucker.

The prisoner’s dilemma:

Two robbers are arrested and imprisoned in isolation. They are urged to confess. Following is the proposal which is kept in front of them. If A confesses while B remains silent, A will be let free while B will have to serve serious time in jail (10 years). Vice-versa if B confesses and A chooses to be silent. If both confess, then the sentence period will be made 5 years for both of them. Finally, if both remain silent, both go to jail for 1 year.

Prisoners are unaware of what his partner decides to do. Plus, each of them is concerned more for their personal freedom than the well-being of the other. So, the dilemma that prisoners face is that confessing is better than remaining silent, no matter what their partner does. Naturally, both will choose to confess. But the outcome when both stay silent and cooperate with each other is better than going for non-cooperation.

This manifests that individuals do not always make rational decisions. Also, the choices do not maximise utility and hinder the collective welfare of all.

A real-life example of this theory can be found in the recent Coronavirus pandemic. During the lockdown, there were predictions of a pending shortage in essential supplies due to the production or supply chains being affected. Everyone started hoarding groceries and other goods to be at the safer side. This behaviour can be explained using the example of a prisoner’s dilemma. People assumed whether the other person buys in bulk or not, he or she is always at an advantage to stock all the necessities before-hand. This led to an actual shortage in the markets and a frantic chaos among the people. If we would have cooperated with each other and didn’t choose to panic-buy, the shortage could have been well dodged. The anticipation of the “perceived” shortage led to an “actual” shortage.

At the end, we all are affected by macro-economic factors like inflation, unemployment and recession. Thus, economics extends to large scale administrative levels as well as has its presence in the fundamental day-to-day decision-making affairs.

References and Further Study

Principles of Economics, Mankiw (2017)

https://plato.stanford.edu/entries/prisoner-dilemma/

Ushashi Adhikary

Ushashi is a content writer at Sociology Group. She is a second-year student, pursuing Economics honours from Miranda House, Delhi University. An active participant in social entrepreneurship ventures, she has also been a part of Connecting Dreams Foundation of her college. Her writing is not the only thing having a creative aspect, she's equally creative in sketching and designing, not just her work but also the lives of the people around her.

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How to Write a Good Economics Essay

Last Updated: March 7, 2023 References

This article was co-authored by Emily Listmann, MA . Emily Listmann is a private tutor in San Carlos, California. She has worked as a Social Studies Teacher, Curriculum Coordinator, and an SAT Prep Teacher. She received her MA in Education from the Stanford Graduate School of Education in 2014. This article has been viewed 127,891 times.

A good economics essay requires a clear argument that is well-supported by appropriately referenced evidence. Research your topic thoroughly and then carefully plan out your essay. A good structure is essential, as is sticking closely to the main essay question. Be sure to proofread your essay and try to write in formal and precise prose.

Preparing to Write Your Essay

For example a question such as “Discuss the macroeconomic consequences of rising house prices, alongside falling interest rates” could be divided into 2 parts: 1 part could be on the effects of rising prices, and 1 on the effects of falling interest rates.
In this example you could begin by discussing each separately and then bringing the 2 together and analysing how they influence each other.
Be sure to keep the question at the forefront of your mind and don’t veer off topic. [1] X Research source

Be sure that you understand all the key terms that you are being asked about.
Try to keep your reading focussed closely to the essay question.
Don’t forget to look at any lecture or class notes you have made.
3 Come up with a thesis statement . A thesis statement is the main argument you will make in your essay. It should be 1-2 sentences long and respond to the essential question that’s being asked. The thesis will help you structure the body of your essay, and each point you make should relate back to the thesis.

Once you have put together a list of key points, then try to add in some more detail that brings in elements from your research.
When you come to write out your essay, you can develop a paragraph based on each point.

All of the evidence and explanation will be in the main body of the essay.
Order the key points in the body of your essay in such a way that they flow logically.
If you are writing a longer essay, you can break the main body into different sections. [2] X Research source
If you have a word limit, be sure to take this into account when you are planning.
Allocate yourself a rough number of words per section.
The introduction and conclusion can be just a paragraph each.

Writing the Essay

What your essay is about.
What material you will cover in the essay.
What your argument is. [3] X Research source

Having this stated clearly at the start can help you to stay focussed on the question as you work your way through the essay.
Try writing out this one or two sentence statement and sticking it up in front of you as you write, so it’s stays at the forefront of your mind.

Try to begin each paragraph with a sentence that outlines what the paragraph will cover.
Look at the opening sentence of each paragraph and ask yourself if it is addressing the essay question. [5] X Research source

Step 4 Provide evidence for your argument.

Try to engage with arguments that run counter to yours, and use the evidence you have found to show the flaws.
It might help to imagine someone reading the essay, and anticipating the objections that he might raise.
Showing that you have thought about potential problems, and you can make an argument that overcomes them, is a hallmark of an excellent essay. [6] X Research source
If there is conflicting evidence, discuss it openly and try to show where the weight of the evidence lies. [7] X Research source
Don’t just ignore the evidence that runs counter to your argument.

In the conclusion you can add a few sentences that show how your essay could be developed and taken further.
Here you can assert why the question is important and make some tentative suggestions for further analysis.

Proofreading and Making Revisions

Step 1 Check for divergences away from the question.

As you read through it, think about how closely you stick to main overarching question.
If you notice paragraphs that drift off into other areas, you need to be tough and cut them out.
You have a limited number of words so it’s essential to make every one count by keeping tightly focussed on the main question.

Step 2 Assess the quality and depth of your argument.

Think about how you use the evidence too. Do you critically engage with it, or do you merely quote it to support your point?
A good analytical essay such discuss evidence critically at all times.
Even if the evidence supports your argument, you need to show that you have thought about the value of this particular piece of data.
Try to avoid making any assumptions, or writing as if something were beyond dispute. [10] X Research source

Step 3 Check spelling, grammar and style.

Remember an academic essay should be written in a formal style, so avoid colloquialisms.
Avoid contractions, such as “don’t”, or “won’t”.
Try to avoid paragraphs that are more than ten or fifteen lines long.
Think about how it looks on the page. [12] X Research source

Step 4 Check your referencing and bibliography.

Always include a bibliography, but don’t include references to things you haven’t read or didn’t inform your argument. [13] X Research source
Your teacher will know if you just add a load of titles into your bibliography that are not evidenced in the body of your essay.
Always follow the bibliography format used by your department or class.

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About This Article

Before you begin writing your economics essay, make sure to carefully read the prompt so that you have a clear sense of the paper's purpose and scope. Once you have read the prompt, conduct research using your textbook and relevant articles. If you cannot find research materials, ask your instructor for recommendations. After your research is done, construct a 1-2 sentence thesis statement and begin outlining your main ideas so that your essay will have a clear structure. Make sure to leave time to write a draft and revise your work before it is due. If you want to learn more, like how to cite the sources you used for your essay, keep reading the article! Did this summary help you? Yes No

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Guide to Microeconomics

How Microeconomics Affects Everyday Life: Renting an Apartment

Learn to make the best use of limited resources

Microeconomics is the study of how individuals and businesses make choices regarding the best use of limited resources. Its principles can be usefully applied to decision-making in everyday life—for example, when you rent an apartment. Most people, after all, have a limited amount of time and money. They cannot buy or do everything they want, so they make calculated microeconomic decisions on how to use their limited resources to maximize personal satisfaction.

Similarly, a business also has limited time and money. Businesses also make decisions that result in the best outcome for the business, which may be to maximize profit.

The field of microeconomics interests investors because individual consumer spending accounts for roughly 70% of the U.S. economy. Microeconomics and macroeconomics (the study of the larger aggregate economy) together make up the two main branches of economics.

Key Takeaways

Microeconomics uses a set of fundamental principles to make predictions about how individuals behave in certain situations involving economic or financial transactions.
These principles include the law of supply and demand, opportunity costs, and utility maximization.
Microeconomics also applies to businesses.

Some Principles of Microeconomics

Before using microeconomics to understand its use in renting an apartment, it helps to understand some fundamentals. Microeconomics uses certain basic principles to explain how individuals and businesses make decisions. These are:

Maximizing utility —Maximizing utility means that individuals make decisions to maximize their satisfaction.
Opportunity cost —When an individual makes a decision, they also calculate the cost of forgoing the next best alternative. If, for instance, you use your frequent flier miles to take a trip to the Bahamas, you will no longer be able to redeem the miles for cash. The missed cash is an opportunity cost .
Diminishing marginal utility — Diminishing marginal utility , another economic input, describes the general consumer experience that the more you consume of something, the lower the satisfaction you get from it. When you eat a burger, for example, you may feel very satisfied, but if you eat a second burger, you may feel less satisfaction than you experienced with the first burger.
Supply and demand —Two other important economic principles are supply and demand as they appear in the market. Market supply refers to the total amount of a certain good or service available on the market to consumers, while market demand refers to the total demand for that good or service. The interplay of supply and demand helps determine prices for a product or service, with higher demand and limited supply typically making for higher prices.

The amount of the U.S. economy accounted for by consumer spending

Applying Microeconomics to Renting an Apartment

To help understand how microeconomics affects everyday life, let’s study the process of renting an apartment. In New York City there is a limited supply of housing and high demand. This explains why housing costs in New York are high, according to the principles of microeconomics just outlined.

Maximizing utility

To rent an apartment, first you must determine a budget. For this you will have to take into account your income and how much money you are looking to spend on housing, in such a way as to maximize your utility or satisfaction. If you allocate too much of your income to rent, you will limit the money you have left for other expenses. Thus, you will have to decide what amount of money is the maximum you are willing to part with for rent, what amenities you must have in your apartment, and which neighborhoods are acceptable to you. All of these decisions and calculations are about maximizing utility.

Opportunity cost

Based on all the above factors, you set a budget to get the most satisfaction for the least possible rent. You will not pay more than you have to in order to get what you want. Given that in this supply-constrained market there are others also interested in renting the more in-demand apartments, you might find that you will have to increase your budget. To do this you will have to cut down on spending in another area, such as entertainment, travel, or eating out. That is the opportunity cost of finding the right apartment.

Supply and demand

Similarly, a landlord will seek to rent an apartment at the highest price possible, as their motivation generally is to get the best return from renting out the apartment. In setting the rent, the landlord would have to take into account the demand for the apartment in that specific neighborhood. If there are enough potential renters interested in the apartment, the landlord would set a higher rent. If the rent is set too high, compared with what other landlords in the neighborhood are charging for comparable apartments, renters will not be interested. Thus the business owner, in this case the landlord, also makes decisions based on supply and demand.

And while the landlord would attract a larger pool of prospective renters by setting a rent that is lower than what other neighborhood landlords are charging for comparable apartments, they would be missing out on some rental income, which will not maximize their utility. Thus, both you and the landlord will make decisions to get the best outcome for yourselves given the constraints you face.

The Bottom Line

In a capitalist economy, both consumers and businesses make thousands of big and small decisions each year guided by microeconomic issues. Consumers seek to maximize their satisfaction when they go out and shop for anything from paper towels to apartments, houses, and cars. Businesses set prices and make other decisions based on microeconomics. The prices that consumers will pay depends on the supply of a specific good, such as an apartment, as well as how much others are willing to pay for it.

Bureau of Economic Analysis. “ National Income and Product Accounts Tables ," Download "Table 1.1.6. Real Gross Domestic Product, Chained Dollars."

Lease Definition and Complete Guide to Renting 1 of 22
10 Reasons Why Renting Could Be Better Than Buying 2 of 22
When Is the Best Time to Rent an Apartment? 3 of 22
How Microeconomics Affects Everyday Life: Renting an Apartment 4 of 22
7 Homeowner Costs Renters Don’t Pay 5 of 22
Tips for Renting a Vacation House 6 of 22
Rent-to-Own Homes: How the Process Works 7 of 22
How to Read a Lease 8 of 22
Rent Control: Definition, How It Works, Vs. Rent Stabilization 9 of 22
Rent Ceiling: Meaning, Pros and Cons, Example 10 of 22
Step-Up Lease: What it Means, How it Works 11 of 22
4 Things Landlords Are Not Allowed to Do 12 of 22
Eviction: Definition and How It Works Under the Law 13 of 22
Retaliatory Eviction: Meaning, Legal Eviction, Example 14 of 22
Lessee: The Person That Rents a Property 15 of 22
Month-to-Month Tenancy: Pros and Cons of Short Term Renting 16 of 22
Tenancy-at-Will: Definition, How It Works, Protections, and Rules 17 of 22
Holdover Tenant: Definition and Legal Rights 18 of 22
Homeowners Insurance vs. Renter’s Insurance: What’s the Difference? 19 of 22
Renters Insurance: What It Is and How It Works 20 of 22
Comprehensive Guide to Renters Insurance 21 of 22
Best Renters Insurance Providers 22 of 22

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Real-Life Examples of Opportunity Cost

What do economists think about strawberry smoothies? That depends on how good the kiwi flavor is instead—plus a range of other choices. Which stirs up the idea of opportunity cost.

How is opportunity cost defined in everyday life?

“Opportunity cost is the value of the next-best alternative when a decision is made; it's what is given up,” explains Andrea Caceres-Santamaria, senior economic education specialist at the St. Louis Fed, in a recent Page One Economics: Money and Missed Opportunities .

The Scoop on Scarcity

We can’t have everything we want in life. This is where scarcity factors in. Our unlimited wants are confronted by a limited supply of goods, services, time, money and opportunities. This concept is what drives choices—and, by extension, costs and trade-offs, Caceres-Santamaria says.

She uses the example of deciding to buy a $7 smoothie at the mall. She notes that many people would view the choice as a single one based on whether you want the drink.

Instead, she suggests wearing “a unique pair of ‘economist glasses’” to see the decision differently, asking:

How much do I value this?
What am I giving up now to have this?
What am I giving up in the future to have this now?

Infographic showing trade-offs for buying a $7 strawberry smoothie

Costs That Are Seen and Unseen

Our inclination is to focus on immediate financial trade-offs, but trade-offs can involve other areas of personal or professional well-being as well—in the short and long run.

That’s why Caceres-Santamaria challenges us to consider not only explicit alternatives —the choices and costs present at the time of decision-making—but also implicit alternatives , which are “unseen” opportunity costs.

“It's about thinking beyond the present and assessing alternative uses for the money—that is, not being shortsighted,” she writes.

What are some other examples of opportunity cost?

A student spends three hours and $20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else.
A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment).
A commuter takes the train to work instead of driving. It takes 70 minutes on the train, while driving takes 40 minutes. The opportunity cost is an hour spent elsewhere each day.

Is Opportunity Cost a Big Deal?

We might not consider lost studying time or $7 spent on a smoothie costly decisions, but what about bigger choices—like the decision to stretch and buy a more expensive home versus a starter home, or to spend $1,500 more on an upgraded trim package for your next car?

Caceres-Santamaria describes how opportunity costs are neglected even more when making higher priced purchases. Using the car-buying example, a consumer might default to thinking of the relative value of the $1,500 upgrade to the base price of the car, say, $18,500.

Rather than comparing the fancier configuration to the vehicle itself, it might be more helpful to ask what else that $1,500 could buy outright.

Why the Rush?

“Most of our decisionmaking that involves money is based on immediate or sooner-than-later consumption,” Caceres-Santamaria notes. “The excitement of consuming today is valued significantly more than the thought of consuming in the future.”

It’s human nature: We grow impatient, tugged by the immediacy of a promised benefit versus a payoff that’s possibly years down the road.

If seeing is believing, it’s worth looking at the future value of money —a concept many of us have read about in retirement plan literature or heard from financial advisors.

The Future Value of Money

Example 1: the one-time windfall.

Let’s say you got a surprise $4,000 windfall and want to use it for a getaway trip. Why not? It’s found money, so there’s no loss to you—unless you think about the opportunity cost.

If you nixed the trip and plunked your money into an income-producing product that earned an average annual interest rate of 3%, compounded monthly, you could find yourself with a cool $5,397 in 10 years.

Line chart comparing total contributions vs. future value of saving a one-time gift of $4,000 vs. spending money on a trip

Notes: Chart is for illustrative purposes only. Created with Compound Interest Calculator on Investor.gov

Wait another five years, and your funds could grow to $6,270 . (Neither example factors in the effects of inflation and taxes owed.)

That’s the added benefit in money terms. You’ll also want to consider the experiences that an extra $1,400 or more—the future earnings on your $4,000—could make possible.

Example 2: Small, regular savings over time

That’s an example of investing a single lump sum over time. What about the opportunity cost associated with daily purchases, such as the $4.49 caffè mocha you pick up three times a week? How much money could you find yourself with if investing that $54 each month rather than spending it?

If you dropped the coffee (careful!), invested $54 per month and earned the same 3%, compounded monthly, you’d have $7,619 to dunk your doughnut into in 10 years.

Line chart comparing total contributions vs. future value of savings on every day items like buying coffee

Too long to forego that regular mocha? Cutting the time frame in half to five years would still give you $3,554 in savings. (Again, these sums don’t include the impact of inflation and taxes.)

These examples are striking, especially when considering that a $4.49 caffè mocha habit over time can dwarf the seemingly larger decision to splurge on a $4,000 getaway trip.

Want to test some of your own opportunity cost what-ifs? Caceres-Santamaria encourages consumers to avoid “autopilot” mode when it comes to financial decisions. Start small—even with a pack of gum—and brainstorm as many alternative uses for your money as you can.

Additional Resources

Opportunity Cost - Online Course for Consumers
There is No Such Thing as a Free Lunch
How Does Compound Interest Work?
Opportunity Cost - Economic Lowdown Podcast Series

Doreen Fagan works in External Engagement and Corporate Communications at the St. Louis Fed.

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7 Reasons Why You Should Study Economics

30 Nov 2017

An economics course can teach you the fundamentals needed to decipher graphs and other important financial data, as well as the tools to develop a successful business strategy.

But how can you know if studying economics is right for you? Consider the possible outcomes of various economics programs and how they compare to your personal and professional goals.

What Is Economics?

At its core, economics is the study of how individuals, groups, and nations manage and use resources.

Economics can be broken down into microeconomics , which examines individual decisions, and macroeconomics , which is concerned with the economy as a whole. Both types of economics utilize historical trends and current conditions to inform business decision-making and make predictions of how markets will behave in the future.

Why Is Studying Economics Important?

Students who choose to study economics not only gain the skills needed to understand complex markets but come away with strong analytical and problem-solving skills, as well as the business acumen necessary to succeed in the professional world.

In fact, economics can be useful for professionals in all industries and aspects of daily life, not just in business.

Access your free e-book today.

7 Reasons to Study Economics

Here’s a look at seven advantages of studying economics and how it can benefit both your organization and career.

1. You'll Expand Your Vocabulary

Whether it’s scarcity (limited resources), opportunity cost (what must be given up to obtain something else), or equilibrium (the price at which demand equals supply), an economics course will give you fluency in fundamental terms needed to understand how markets work. Even if you don’t use these words often in your current role, studying these economic terms will give you a better understanding of market dynamics as a whole and how they apply to your organization.

2. You’ll Put New Terms into Practice

Economics isn’t just learning a set of technical words, it’s actually using them to develop a viable business strategy . Once you understand the terms, it’s easier to use theories and frameworks, like Porter’s Five Forces and SWOT analyses, to assess situations and make a variety of economic decisions for your organization. For example, many companies need to decide whether to pursue a bundled or unbundled pricing model or strategize for the best ways to maximize revenue .

3. You’ll Understand Your Own Spending Habits

Economics will teach you about how your organization and its market behaves, but also offer insights into your own spending habits and values. For example, Willingness to Pay (WTP) is the maximum amount someone is willing to pay for a good or service. There’s frequently a gap between hypothetical and actual WTP, and learning about it can help you decode your own behavior and enable you to make wiser financial decisions.

Demand curve; width: 50px; align: right;

For Shamari Benton, the concepts he learned in Economics for Managers opened his eyes to how everyday decisions are infused with economic calculations and principles.

“A simple grocery store visit becomes filled with economic references and analytical ponders,” Benton says.

4. You’ll Master the Nuances of the Field

Many people think of economics as just curves, models, and relationships , but in reality, economics is much more nuanced. Much of economic theory is based on assumptions of how people behave rationally, but it’s important to know what to do when those assumptions fail. Learning about cognitive biases that affect our economic decision-making processes arms you with the tools to predict human behavior in the real world, whether people act rationally or irrationally.

5. You’ll Learn How to Leverage Economic Tools

Learning economic theory is one thing, but developing the tools to make business decisions is another. Economics will teach you the basics and also give you concrete tools for analysis. For example, conjoint analysis is a statistical approach to measuring consumer demand for specific product features. This tool will allow you to get at the surprisingly complicated feature versus price tradeoffs that consumers make every day.

For example, imagine you work for Apple Inc. and you want to know what part of the iPhone should improve: Battery life, screen size, or camera. A conjoint analysis will let you know which improvements customers care about and which are worth the company’s time and money.

6. You’ll Be Better-Prepared for Graduate School

In addition to helping you make better decisions in both your personal and professional life, learning economics is also beneficial if you’re considering a graduate business degree. Studying economics can equip you with the problem-solving skills and technical knowledge needed to prepare for an MBA .

An MBA typically includes courses in finance, accounting, management, marketing, and economics, so if you decide an MBA is right for you, you’ll already be one step ahead. Furthermore, a foundational knowledge of economics enables you to use economic theories and frameworks to decide if graduate school is worth the financial investment.

7. You’ll Improve Your Career Prospects

An education in economics can improve your employability in a variety of industries. According to the World Economic Forum's Future of Jobs Report , analytical thinking and complex problem-solving skills top the list of transferable skills that employers will find increasingly important by 2025, both of which can be gained by studying economics.

In addition, many careers require knowledge of economic concepts, models, and relationships. Some possible career paths for economics students include finance, banking, insurance, politics, and healthcare administration . You’ll also be able to further your career in your current industry, as an understanding of the economics that power your industry can help you to be more effective in your role.

A Guide to Advancing Your Career with Essentials Business Skills | Access Your Free E-Book | Download Now

Options for Studying Economics

There are many options available for those looking to pursue an education in economics. Depending on your personal and professional goals, your current stage in life, and other important factors, you may choose to pursue an undergraduate or graduate degree in economics or take an online economics course to expand your future career opportunities.

Whether you're new to the business world or an experienced manager, having a thorough understanding of how markets work, pricing strategy, and consumer behavior is essential to success.

Do you want to take your career to the next level? Explore our eight-week online course Economics for Managers or other business essentials courses to learn how to apply economic principles to business decisions.

This post was updated on June 8, 2022. It was originally published on November 30, 2017.

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A better life everyone can afford: Lifting a quarter billion people to economic empowerment

At a glance

The “empowerment line” gauges progress toward a world in which everyone can meet their essential needs. This threshold, set well above the international poverty line, is the point at which people can afford a standard basket of essential goods and services and begin to save.
Economic growth is rapidly improving living standards in lower- and middle-income countries, but this effect stalls out in advanced economies. In wealthier countries, higher costs and inequality prevent about 20 percent of the population on average from reaching full economic empowerment.
Struggling households benefit from higher incomes only when those gains translate into greater purchasing power. Comparing economies at every step of the income ladder reveals that the essentials generally become more expensive as countries become wealthier—and these cost increases tend to match or exceed income gains for the bottom 20 percent of households. Housing is the biggest affordability issue for higher- and middle-income economies; food costs are an important differentiator elsewhere.
If all countries could lower the costs of essential goods and services to match peers with better affordability at the same income level, almost a quarter billion additional people could reach the empowerment line. These outperformers show that it is possible to limit household expenditures on basic goods and services.
While affordability is influenced by policy and the delivery of public services, the private sector has scope to act. In addition to easing cost burdens for their own workforces and across their value chains, businesses can develop affordable offerings in housing, energy, food, healthcare, and communication. They can find opportunities to pass on productivity-driven savings to consumers and expand low-cost business models into underserved regions and populations.

High costs for the necessities of life have millions feeling as if they can’t get ahead. Postpandemic inflation has given prominence to a structural issue that’s been brewing for years: the cost of the basics is out of reach for too many households.

The empowerment line, introduced in previous research by the McKinsey Global Institute (MGI), offers a way for public- and private-sector leaders to monitor this issue. It considers the daily expenditure needed to afford a basket of essential goods and services that constitute a frugal but decent living standard (see sidebar, “What is the empowerment line?”). A sharply higher standard than the international poverty line, it is designed to encompass those who are not formally counted as poor but are still unable to make ends meet. As of 2020, 9 percent of the global population lived in extreme poverty, while 60 percent lived below the empowerment line. 1 “Poverty—overview,” World Bank, October 2023; and From poverty to empowerment: Raising the bar for sustainable and inclusive growth , McKinsey Global Institute, August 2023.

This analysis extends our earlier research by analyzing empowerment outcomes for countries of differing income levels. It also highlights a major issue that needs to be tackled to unlock further progress: affordability. Comparing countries, we see the cost of the basics rising in tandem with GDP per capita. Those cost increases largely or wholly eat up the additional income that goes to the bottom 20 percent of the population when a country attains a higher rung on the income ladder. That pattern is one of the factors preventing wealthier countries from achieving universal economic empowerment.

Much of the debate on how to help struggling households centers on boosting incomes and reducing inequality. But the puzzle can’t be solved in full without addressing the cost side of the ledger as well. Indeed, if countries with more expensive empowerment baskets could lower those costs to match better-performing peers of similar income levels, some 230 million additional people would be above the empowerment line today. The global population that is fully empowered would grow by about three percentage points.

In advanced and emerging economies alike, the high cost of housing is often the biggest factor keeping a decent standard of living out of reach. In lower-income countries, food costs are also a pressing issue. This creates real stress, since the costs of essential goods and services have been rising faster than overall inflation—and lower-income households devote a larger share of their budget to these items. 2 See The social contract in the 21st century , McKinsey Global Institute, February 2020; and Jakub Caisl et al., The uneven impact of high inflation , OECD Papers on Well-being and Inequalities, working paper number 18, October 2023. Putting essentials within reach for everyone would require addressing structural issues, including low productivity growth in sectors such as education and construction, constraints on access and supply, and low levels of competition.

A broad “affordability agenda” could relieve at least part of the burden for households on the margins. Policies and public investment would need to be part of the answer—but the private sector can make a real difference, too. In tackling this issue, companies may find opportunities to boost employee productivity, gain a labor cost advantage, and find new sources of revenue in underserved markets.

Economic empowerment rises with income, but only to a certain point

What is the empowerment line.

The empowerment line is MGI’s estimate of the expenditure required for every individual in a given country to access nutritious food, housing and energy, safe water, transportation, healthcare, education, clothing, and communication, with some minimum spending on recreation or community activities. It implies a frugal life but enables people to focus on more than mere survival.

This is the point at which people can begin to meet some of their material wants and exercise more choices about where and how they live. Critically, the empowerment line also includes a small margin for savings to reduce the risk of falling back into poverty; only beyond this point can people start to build wealth. At a societal level, lifting people meaningfully above poverty is correlated with improved metrics ranging from reduced childhood mortality and longer life expectancy to additional years of schooling and expanded digital and financial inclusion. 1 From poverty to empowerment: Raising the bar for sustainable and inclusive growth , McKinsey Global Institute, August 2023.

Empowerment extends and complements the “living wage” concept that has gained traction for employers and workers to evaluate wages against living costs. Because it is based on consumption, however, it can apply to the entire population (including children, the elderly, and people with disabilities or caregiving responsibilities), not only workers. It is agnostic as to the source of spending power; in addition to reflecting earned wages, it captures spending by people relying on government transfers and retirees spending down accumulated lifetime savings.

To calculate the empowerment line, we use detailed 2022 and 2023 cost-of-living data from the WageIndicator Foundation, which conducts surveys to understand spending on a defined basket of essential goods and services (not the economy-wide basket used in measures of purchasing-power parity, or PPP). For example, housing costs are for a rented two-bedroom apartment in an average urban area, while food costs are for a balanced diet making up 2,100 calories per day (accounting for food differences across economies). We also layer in buffers for savings and social participation. 2 We calculate social participation as 10 percent of basic needs, based on WageIndicator Foundation data. That includes the cost of recreation, hobbies, or enrichment activities. It also serves as a buffer to account for any expenses specific to individual countries that may not be reflected in the global framework. We also include a savings buffer equal to 5 percent of the total empowerment basket. In higher-income economies, housing tends to make up the largest share of the basket (about 40 percent), while food makes up the largest share (approximately 35 percent) in lower-income countries.

These data already reflect the in-kind services provided in a given country. Education or healthcare that is fully provided by the government, for example, lowers the empowerment line. Because the data are based on household surveys, the perception of a safety net also plays a role; public programs that do not fully reach their intended populations may not be fully reflected in empowerment line figures, and households may not consider rebates or tax credits when providing an estimate of their out-of-pocket costs.

Empowerment costs may differ across countries because of varying production costs of essentials, profit margins for producers, and the extent (and effectiveness) of subsidies and other in-kind social benefits. Because details about those components of the empowerment line cannot be discerned from survey data alone, it is beyond the scope of this research to disaggregate them, although that would be a promising area for future research.

In this research, the term “affordability” describes whether it takes relatively high or low expenditures by households to acquire the essential goods and services in the empowerment basket, based on comparing costs across all countries in the same income band. In addition to capturing differences in production costs, this approach captures differences in whether households must pay for goods and services out of their net income or whether they are publicly provided. For example, fully tax-funded education systems are more “affordable” than alternative models that charge fees.

Note that for a subset of 20 of the lowest-income countries, our analysis sets the empowerment line at a standard “floor” of $12 per person per day in PPP terms rather than using a bottom-up calculation of local costs. Although the empowerment basket may actually cost less than $12 in these countries today, this choice reflects the aspiration to set an ambitious global target for minimum living standards, and this requires a higher adjustment in the poorest countries, enabling quality improvements where needed.

Having established the empowerment line, we can then calculate the share of population below it in each country, using consumption data from Oxford Economics and distribution data from World Data Lab, which gets us to a daily per capita spending figure for each country. Like the empowerment line itself, daily spending figures reflect impacts from cash transfers and public income-assistance programs.

There is broad agreement that living wage data quality and methodology (which our research builds on) could be improved, and we acknowledge these limitations. 3 Carlotta Balestra, Donald Hirsch, and Daniel Vaughan-Whitehead, Living wages in context: A comparative analysis for OECD countries , OECD Papers on Well-being and Inequalities, working paper number 13, OECD, 2023. In addition, we estimate the empowerment line at the national level, which does not reflect substantial variations within countries; economic empowerment requires higher levels of consumption in a booming city than in a small rural town, for example. The estimates are calculated on a per capita basis, but at the household level, spending patterns will vary with the number and characteristics (such as work status) of household members.

Most countries gauge progress in living standards by looking at GDP per capita or household income, but that doesn’t fully reflect what it takes to get by in a given place. Progress toward economic inclusion requires factoring in both what households bring in and what they must pay out. The empowerment line captures those outlays. It can shed light on whether people have sufficient spending power to meet all their fundamental needs (see sidebar “What is the empowerment line?”).

Globally, growth fuels economic empowerment

In perhaps the greatest achievement of modern times, more than a billion people have exited extreme poverty over the past three decades. Most were in the fastest-growing lower- and middle-income economies, including China and India. 3 From 1990 to 2013, for example, 1.1 billion people emerged from extreme poverty globally, more than 90 percent of them from countries whose GDP grew at least 5 percent per year. See Outperformers: High-growth emerging economies and the companies that propel them , McKinsey Global Institute, September 2018; and Four decades of poverty reduction in China , World Bank, 2022. This has produced substantial global progress in human development outcomes such as child mortality and average years of schooling. 4 “Children: Improving survival and well-being,” World Health Organization, September 2020; and World development report 2018: Learning to realize education’s promise , World Bank, 2017.

A point-in-time view of 120 countries shows that those with higher average incomes typically have larger shares of the population above the empowerment line. Climbing the income ladder is critical: only about 20 percent of the population is fully empowered in lower-income economies, but that share increases to roughly 50 percent in middle-income economies and about 80 percent in higher-income economies. At the global level, this is the crux of the matter, since more than 4.7 billion people had not yet reached the empowerment line as of 2020. 5 From poverty to empowerment: Raising the bar for sustainable and inclusive growth , McKinsey Global Institute, August 2023.

Note that our analysis uses a snapshot of 2022 data and does not track the relationship between GDP per capita and empowerment over time. But academic literature, as well as our own analysis of related metrics, indicates that the point-in-time results across countries also apply to individual countries as they grow. Economic growth is how a country reaches a higher rung on the income ladder—and it is the most powerful mechanism for improving living standards in lower- and middle-income economies. 6 The relationship between growth and well-being is well documented. The UN’s Multidimensional Poverty Index (which combines measures of health, education, and living standards) and the EU’s material deprivation rate (which tracks the share of the population that cannot afford items needed to lead an adequate life) finds a positive, statistically significant relationship between per capita GDP growth and improved outcomes in these measures across countries. See also Maria Emma Santos, Carlos Dabus, and Fernando Delbianco, “Growth and poverty revisited from a multidimensional perspective,” Journal of Development Studies , volume 55, issue 2, 2019; this research finds that a 1 percent increase in the economic growth rate leads to a 0.6 percent reduction in the multidimensional poverty index. The relationship between the EU’s material deprivation rate and per capita GDP growth is based on data from Eurostat as of March 2024.

MGI’s previous research shows how faster productivity-driven growth could lift incomes and transform lives on a massive scale. Ramping up growth is no easy feat, however. It involves not only maintaining baseline growth in the face of headwinds but also boosting productivity, which requires greater competition, innovation, and labor mobilization. 7 Investing in productivity growth , McKinsey Global Institute, March 2024. While growth increases incomes on average, ensuring that those below the empowerment line share in the benefits depends on employers creating better jobs and training workers to step into them. This dynamic does not happen without intentional and well-coordinated effort.

In economies where growth has collapsed, the consequences for vulnerable households are immediately apparent. With its long-term economic challenges unresolved, Argentina has recently experienced both stagnation and skyrocketing inflation, pushing many middle- and working-class families into precarious circumstances. 8 Déborah Rey, “Rising poverty grips Argentina as runaway inflation takes its toll,” Associated Press, September 27, 2023. A serious hunger crisis has developed in Pakistan, where growth ground to a halt in 2023 amid a similar inflationary spiral. 9 Abid Hussain, “Why is Pakistan ranked 99th on the Global Hunger Index?” Al Jazeera, July 26, 2023. For more on the broader relationship between downturns in growth and poverty, see, for example, Correcting course: Poverty and shared prosperity 2022 , World Bank, 2022; Stephen N. Broadberry and John Joseph Wallis, Growing, shrinking, and long-run economic performance: Historical perspectives on economic development , NBER working paper number 23333, 2017; and Heidi Shierholz and Elise Gould, Poverty and income trends paint a bleak picture for working families , Economic Policy Institute, September 2010. This underscores the link between growth and living standards.

Higher average incomes don’t translate into economic empowerment for everyone in wealthier economies

While higher income levels correlate with better empowerment outcomes, that relationship dissolves at the top of the income ladder, once countries exceed about $20,000 in GDP per capita (Exhibit 1). Reinforcing what we see from this static view, research has found a similar pattern over time in Europe. In the continent’s lower-income economies, there is a positive, statistically significant relationship between growth and lower material deprivation, but that relationship does not hold for its higher-income economies. 10 Based on our analysis, a 1 percent growth rate correlates with a four-percentage-point improvement in material deprivation rates in lower-income European economies. Based on March 2024 Eurostat data.

Image description:

A scatterplot shows 120 dots representing countries, with the share of population above the empowerment line on the vertical scale and GDP per capita on the horizontal scale, ranging from zero to $125,000. The dots are mostly bunched at the far left but trend sharply upward as they near $20,000 on the horizontal scale, but that trends starts flattening to the right of $20,000. Dots are organized into three categories: first, 44 countries with income below $5,000 and empowerment ranging from nearly 0% to 50%; second, 40 countries with income from $5,000 to $20,000 and empowerment ranging from about 25% to 75%; and third, 36 countries with income above $20,000 and empowerment ranging from about 55% to 90%.

End of image description.

In short, very high levels of general prosperity are not a guarantee of baseline security for everyone. For example, although GDP per capita is more than three times higher in Switzerland than in Spain (in USD terms), their shares of the population below the empowerment line are similar. Even the wealthiest economies have not lifted the last 20 percent or so of the population above the line.

Boosting incomes is the biggest determinant of empowerment for much of the world, but not in wealthier countries. In fact, differences in GDP per capita alone explain 79 percent of the variations in empowerment outcomes across lower-income economies and 43 percent across the middle-income segment. 11 We define lower-income countries as those with GDP per capita of less than $5,000 and middle-income countries as those with GDP per capita of $5,000 to $20,000. For more on our country sample and the regression used to determine the share of variation explained by income, see the technical appendix. For these two groups of countries—which happen to be home to more than 85 percent of the world’s population—reaching the next rung on the income ladder is key. That is achieved through economic growth, which creates jobs, increases household incomes, and generally expands access to goods and services. However, differing levels of GDP per capita explain less than 15 percent of the differences in empowerment outcomes across the wealthiest countries (Exhibit 2).

A vertical bar chart plots the percentage of explanatory power that certain factors have in people’s ability to reach economic empowerment across 120 countries, with bars for the three income groups introduced in the previous exhibit. GDP per capita alone has explanatory power that descends as income grows, with bars shrinking from 79% in lower-income countries to 14% in high-income countries. But in contrast, GDP per capita combined with factors of affordability and inequality have higher and rising explanatory power, from 85% in lower-income countries to 95% in higher income countries.

Globally, countries with similar levels of GDP per capita have notably different shares of their populations above the empowerment line; the variations are 20 percentage points on average. These differences matter: keeping income levels constant, if all countries matched the empowerment outcomes of their best-performing peers, 360 million more people would be above the line today. 12 A country’s peers are defined as other countries within an income range of +/- 25 percent. For more on this calculation, see the technical appendix.

What else is at work? In short, inequality (the way that national income and wealth are distributed) and affordability (how far it goes, especially for those at the bottom). Inequality of wealth and income leaves the poorest segments without the means to fully meet their needs, even in countries where the average income is high. 13 Note that the data underlying our analysis measure individual private consumption and how it is distributed across population deciles. In addition to inequality, other factors, such as the propensity to spend, may be at work. For broader research on inequality, see Thomas Piketty and Arthur Goldhammer, Capital in the twenty-first century , Belknap Press, 2014; and Emmanuel Saez and Gabriel Zucman, “The rise of income and wealth inequality in America: Evidence from distributional macroeconomic accounts,” Journal of Economic Perspectives , volume 34, number 4, fall 2020. Beyond whether people have spending power, we also have to look at how much they need to pay out. We use the term “affordability” to describe whether the household expenditures needed to obtain the goods and services in the empowerment basket are relatively high or low for a given country’s income level.

For higher-income economies, affordability and inequality together explain an additional 80 percentage points of the variation in empowerment outcomes. Both of these factors individually have greater explanatory power then GDP per capita alone. While it's important to focus on what people at the bottom earn, what households need to spend to acquire the basics merits attention, too. In lower- and middle-income economies, growth still matters above all—but the cost of the basics is even more important to empowerment outcomes than distributional effects. 14 For more on the methodology behind this finding, see the technical appendix.

Estimating the empowerment line across countries

We acknowledge the difficulty of making precise comparisons across countries when looking at issues related to poverty and consumption. For example, economic empowerment implies spending $41 per person per day in the Netherlands and $24 in Japan. Part of this difference comes down to varying general price levels. Accounting for this, however, explains less than 40 percent of the difference between these two countries. In PPP terms, the cost of empowerment would be $47 PPP in the Netherlands and only $29 PPP In Japan. 1 Using World Bank International Comparison Program PPPs for households’ final consumption expenditures. More broadly, a similar trend is observed for national extreme poverty lines expressed in 2017 PPP, which also rise in line with GDP per capita. See Assessing the impact of the 2017 PPPs on the International Poverty Line and global poverty , policy research working paper number 9941, World Bank, 2022. PPP is meant to provide a common benchmark, but it has limitations in the context of this research.

This is explained by several factors, as follows:

First, essential goods and services in the empowerment basket vary based on local contexts and the extent of public support (see sidebar “What is the empowerment line?”). For example, Japan has nearly universal public healthcare, whereas individuals in the Netherlands are required to contribute to their own standard health insurance premiums. 2 Basic insurance in the Netherlands covers, for example, prescription medication and consulting a general practitioner. Long-term treatments are covered by the state. See, for example, “Health insurance,” Government of the Netherlands, March 2024.
Second, PPP does not reflect the composition of the consumption basket at the empowerment line. Consider, for example, the PPP factor for housing, which includes rental and owned units of all sizes. 3 Purchasing power parities and the size of world economies: Results from the 2017 International Comparison Program , World Bank, 2020. By contrast, the housing component of the empowerment basket only considers renting a two-bedroom apartment in an average urban area and costs borne by the individual.
Third, the same essential item can vary in quality and characteristics. The average home in Canada has 2.6 rooms per person, while in South Korea, the average home contains 1.5 rooms per person. Quality—not only in housing but also in healthcare, education, food, and other areas—can also vary because some countries have more stringent or extensive regulations than others (for example, more detailed building codes or product safety requirements). 4 For rooms per person, see the OECD’s Better Life Index on Housing at www.oecdbetterlifeindex.org/topics/housing/.
Fourth, the precise composition of the empowerment basket itself differs slightly across countries. Housing tends to represent a larger share of the basket in higher-income economies than in lower-income economies, and even among higher-income economies, some countries have higher costs of individual items and therefore have a different distribution of items built into the empowerment cost.

The upward shifts in the empowerment line go hand in hand with higher income levels, even in PPP terms. This mirrors a phenomenon described in development literature of national poverty lines rising with income levels. In the case of poverty lines, changing bundles of consumption and higher standards are cited as reasons for an uptick as countries develop. 5 See, for example, Martin Ravallion and Shaohua Chen, “A proposal for truly global poverty measures,” Global Policy , volume 4, issue 3, September 2013.

Separately, we note measurement challenges that affect 20 of the lowest-income countries. As noted earlier, we apply a global empowerment line floor of $12 PPP per person, per day. Costs in these countries may actually be lower, but we chose to make an upward adjustment to account for quality improvements. Applying the $12 PPP floor implies that 23 percent of all lower-income countries’ populations on average are above the empowerment line. If we were to use a bottom-up calculation of local costs, that average would go up to 26 percent. When we apply the floor, economic growth becomes an even more important factor in lifting people above the empowerment line; the variation in empowerment outcomes explained by GDP per capita levels (as shown in Exhibit 2) is 12 percentage points higher compared with results based only on local costs. In nearly all of these countries, GDP per capita is less than $2,500, and the primary challenge is raising this level. As we consider affordability opportunities in the remainder of this research, we exclude these countries to avoid conflating affordability with lowering standards in places where they need to rise.

Two countries at the same income level may have different empowerment costs for a variety of reasons, starting with policy choices about which services are publicly funded and to what extent, and how effectively those services reach the intended recipients. Some of it comes down to local context. In some places, people may need their own cars to get around, for instance; in others, two-wheelers or public transit might suffice. Additionally, the same item might have different quality standards from place to place—for example, apartments in cold climates need extra insulation and glazed windows. Finally, costs can vary for identical items due to issues such as trade restrictions (see sidebar “Estimating the empowerment line across countries”).

For the bottom 20 percent of households, high costs for the essentials prevent living standards from rising

Economic growth lifts household incomes—even for those at the bottom. Our point-in-time view of countries across the income ladder shows that an incremental $100 of GDP per capita is associated with an additional $18 to $22 of consumption by households at the 20th percentile of income. If this static view holds over time, income growth should translate into higher spending power across a population.

But higher income levels are also associated with higher costs for life’s necessities, including food, rent, energy, and transportation. 15 Quality improvements and shifting relative costs and compositions of empowerment baskets drive these cost increases. However, they can be somewhat offset by growth in public support. Between 2009 and 2019, in-kind transfers as a share of GDP fell slightly in the United States and the European Union and increased slightly in Japan. See “Social benefits to households,” OECD, March 2024. As a country adds that incremental $100 in GDP per capita, affording the basics takes an additional $18 (Exhibit 3). Income gains for a household in the bottom quintile are almost fully eaten up by higher costs. This effect is most pronounced in wealthier economies, where many households on the margins simply don’t see their living standards improve. 16 Previous MGI research found that between 2000 and 2017, increased spending on housing, healthcare, and education absorbed income gains to varying degrees in ten of 22 countries, with the largest erosion in the United Kingdom. In countries where incomes declined (including Italy, Japan, and Spain), increased spending on the basics further eroded incomes by 6 to 29 percent. See The social contract in the 21st century , McKinsey Global Institute, February 2020. More prosperous households feel these cost increases, too. But their income gains are large enough to absorb them while still coming out ahead.

A vertical bar chart plots the dollar increase in household spending that corresponds with a $100 increase in GDP per capita across 120 countries, with bars for three representative household spending percentiles across the three income categories, for a total of nine bars. At the 20th percentile, the income groups each increase by about $20, but an annotation notes that $18 goes toward the increased cost of the empowerment basket. At the 50th percentile, the increases range from about $30 to $40. And at the 80th percentile, the increases range from about $45 to $85.

Postpandemic inflation has greatly exacerbated the squeeze on household budgets worldwide; the past few years have brought supply chain disruptions as well as global spikes in food and energy prices stemming from the pandemic, geopolitical conflicts, climate change, and blockages of shipping routes.

But it’s important to emphasize that the rising cost of living is not only a recent or transitory development. The prices of certain essential goods and services, such as housing, healthcare, and education, tend to increase much faster than overall consumer price indexes. 17 See, for example, Jakub Caisl et al., The uneven impact of high inflation , OECD Papers on Well-being and Inequalities, working paper number 18, October 2023. The average consumer benefits from lower relative prices for items such as communication technologies and clothing, while facing higher relative prices for housing, healthcare, and education. For low-income households, this issue is magnified, since essential items account for a disproportionate share of their expenditures.

There are structural forces at play in this phenomenon. Labor-intensive sectors, such as healthcare and education, and other low-productivity-growth sectors, such as construction, compete for labor with much higher-productivity sectors; they thus must raise wages at a higher rate than their productivity growth. Although high-productivity sectors such as technology may pay higher wages while lowering prices, low-productivity, labor-intensive sectors tend to pass higher production costs on to consumers. 18 This is the central thesis of “Baumol’s cost disease.” As mentioned earlier, our analysis is based on cross-sectional data across 120 economies as of 2022. While Baumol’s cost disease refers to growth in wages and productivity over time in an economy, it can help to explain why costs of empowerment tend to increase with income. In higher-productivity economies, wages across sectors increase, even in sectors with relatively low productivity. See William J. Baumol and William G. Bowen, “On the performing arts: The anatomy of their economic problems,” American Economic Review , volume 55, number 2, 1965; William J. Baumol, The cost disease: Why computers get cheaper and health care doesn’t , Yale University Press, 2012; and William D. Nordhaus, Baumol’s diseases: A macroeconomic perspective , NBER working paper number 12218, May 2006.

Beyond productivity and wage dynamics, inefficient markets often drive up the cost of the basics. This could be related to the extent of competition (and trade openness) in a given sector, regulation, or potential supply constraints. Most important is that housing supply is often restricted (by zoning laws, for example) and thus not able to respond to increasing demand related to population growth, migration, or changing preferences.

These types of issues add up to daily stress and missed opportunities for billions of people worldwide. Many are unable to save or to exercise choice about where and how they’d like to live. For example, more young adults in higher-income economies are living with their parents, delaying their independence by years; others are not having children because they feel they can’t afford it. 19 See, for example, “More adults living with their parents,” UK Office for National Statistics, May 10, 2023; Daniel de Visé, “More adult children are living with their parents. Parents are not pleased,” Hill , December 16, 2022; and Claire Cain Miller, “Americans are having fewer babies. They told us why,” New York Times , July 5, 2018.

If all countries could bring down the costs of the essentials to match the best-performing countries at their income level, we estimate that some 230 million additional people worldwide would reach full economic empowerment (Exhibit 4). 20 See the technical appendix for full details on the methodology behind this estimate. This figure is larger than the entire population of Nigeria—and it would boost the share of the global population above the empowerment line by three percentage points (and by five percentage points in our sample countries with GDP per capita above $2,500). Individuals would be relieved of pressure and better able to secure the economic foothold they need to thrive.

A data visualization table shows the distribution of 230 million people across five income categories who could reach full economic empowerment if their countries lowered the empowerment basket cost to match that of top performers, ranging from 20 million in countries with income between $20,000 and $40,000 to 90 million in countries with income between $5,000 and $10,000. A scatterplot with 93 dots shows countries’ daily empowerment basket cost on the vertical axis and GDP per capita on the horizontal axis, illustrating costs in each of the five income categories. The dots begin at the bottom left, around $5–$10 in countries below $5,000 GDP per capita and trend upward and to the right, to a range of about $25–$70 in countries above $40,000 GDP per capita.

Housing and food are the biggest affordability issues globally

Four basic items are most significant to the overall cost of the empowerment basket: housing, food, transportation, and healthcare (Exhibit 5). Together these items account for 80 percent of the consumption required to be empowered.

A data visualization table uses vertical stacked bar charts to show the distribution of costs driving the difference between the most and least affordable empowerment baskets across 93 countries split into the same five income groups introduced in the previous exhibit. A dot plot chart shows the range of empowerment basket costs, with a short line from $4–$9 for the lowest income group and a longer line from $28–$54 for the highest income group. And the stacked bars show that the cost segments of housing and food account for more than 60% of the difference across nearly all of the income groups.

Housing costs are the biggest affordability challenge in high- and middle-income economies, explaining at least a third of the difference in the cost of a fully empowered life across those countries. Housing interventions can be transformative; conversely, inaction can have a dramatic impact on individuals and families in places where housing markets are distorted. Countries that have prioritized affordable housing are able to lift living standards for a wider swath of the population—and in countries with worsening housing affordability, the issue is becoming untenable.

The swings that could be possible with an emphasis on affordable housing are significant. For example, our estimates imply that if housing costs in Germany were hypothetically 26 percent lower, matching the level of its most affordable peer economy, 3.7 million more people would be lifted above its empowerment line. 21 In 2022, almost 12 percent of the German population lived in households that were overburdened by housing costs (that is, total housing costs, net of housing allowances, represented more than 40 percent of the total disposable household income, net of housing allowances). The comparable shares were 7.4 percent in Austria and 7.7 percent in Belgium. See “Housing cost overburden rate by age, sex and poverty status,” Eurostat, March 2024. In Mexico, if housing costs were hypothetically 18 percent lower (again, matching its most affordable peer economy), 2.4 million more people could reach empowerment.

In lower-income economies, food costs are also a significant cost-of-living factor with a major effect on empowerment. In countries with GDP per capita between $2,500 and $5,000, food costs 2.5 times more in some places than in others.

The housing squeeze has an imbalance of supply and demand at its core

Previous MGI research has found that rising incomes have historically gone together with increasing housing prices. From 2002 to 2018, well before the pandemic, housing costs in the United Kingdom outpaced general changes in the consumer price index by 41 percentage points. 22 The social contract in the 21st century , McKinsey Global Institute, February 2020. Now the issue has become even more acute in the pandemic’s wake, notably in the major cities of high-income economies, including Australia, Canada, the United States, and multiple countries in Europe. 23 See, for example, “Australian houses are less affordable than they have been in decades,” Economist , January 2024; “Canada turns to a post-war strategy to battle housing crisis,” Reuters, December 12, 2023; and Housing affordability remains stretched amid higher interest rate environment , International Monetary Fund, January 2024.

What helps to explain these rising costs? In short, an imbalance in demand and supply.

On the demand side, a number of factors push costs up. Population growth, particularly among the middle class, is one. In addition, better housing is typically the first thing individuals spend on when they have an upward bump in disposable income, and then, as households build wealth, homes are often their primary store of value. 24 Greg Howard and Jack Liebersohn, “Why is the rent so darn high? The role of growing demand to live in housing-supply-inelastic cities,” Journal of Urban Economics , volume 124, 2021. Previous MGI research has found that household real estate is the largest form of wealth globally, and for many households, their home is their largest asset. Rising home values were also associated with low-interest-rate environments in the decade preceding the COVID-19 pandemic, though that relationship is not in the scope of this analysis. See The rise and rise of the global balance sheet: How productively are we using our wealth? , McKinsey Global Institute, November 2021. Furthermore, as economies grow, people expect higher-quality living environments and household sizes get smaller, leading to greater costs per person. 25 The quality of housing for populations in the bottom quintile of the income distribution improves as economies get richer. At the same time, the average household size decreases, and the number of rooms per household member increases. See, for example, “Housing conditions,” OECD, March 2024; Total population living in a dwelling with a leaking roof, damp walls, floors or foundation, or rot in window frames or floor , Eurostat, August 2024; and “Household size and composition,” United Nations, 2022. In “superstar” cities with better job opportunities, demand for housing is especially strong and prices are inelastic. 26 Joseph Gyourko, Christopher Mayer, and Todd Sinai, “Superstar cities,” American Economic Journal: Economic Policy , volume 5, number 4, November 2013. Demand for housing also comes from investors who seek attractive investment opportunities in real estate, particularly in major cities. 27 See, for example, Nick Gallent, Dan Durrant, and Neil May, “Housing supply, investment demand and money creation—a comment on the drivers of London’s housing crisis,” Urban Studies , volume 54, issue 10, May 2017; and Mi Zhou, Yurong Qiao, and Jiahong Guo, “Separating the consumption and investment demands for housing: Evidence from urban China,” Heliyon , volume 9, issue 10, October 2023.

On the supply side, years of underinvestment, zoning restrictions, and regulations—as well as local resistance to new builds—have produced housing shortages that have compounded over time. 28 Edward Glaeser and Joseph Gyourko, The economic implications of housing supply , 2021. In some locations, vacation rentals are reducing supply and pricing out locals. 29 Agustin Cocola-Gant, “Holiday rentals: The new gentrification battlefront,” Sociological Research Online , volume 21, issue 3, August 2016. Increasing interest rates in the past two years have further limited housing supply. 30 Turbulence for interest—sensitive sectors in eye of rate hike storm , Oxford Economics Research Briefing, November 2023. New builds have become more expensive because of the price of scarce land in dense cities and because of construction costs that have outpaced inflation.

Both public and private actors could accelerate economic inclusion by putting more weight on affordability

The empowerment line could be a useful tool for galvanizing both public and private efforts to expand inclusion, with a greater emphasis on affordability.

The public sector plays a major role

Much of the debate about how the public sector can improve the well-being of lower-income households revolves around income, inflation, and potential responses such as tax policies, cash transfers, and labor regulation. But the public sector also affects affordability. Most governments deliver public goods and services such as housing, education, and healthcare. Most intervene in markets to a certain extent, perhaps by subsidizing priority goods (such as food or energy), preventing price gouging, ensuring competition, or regulating trade.

One of the roles of government could be to maximize the efficiency of end-to-end value chains (such as food or energy delivery); this could take the form of streamlining regulatory burdens or building modern infrastructure. Boosting the reach of existing in-kind transfer programs could help further bring down households’ spending on essential goods. In some cases, policies focused on cost reduction may have a larger impact than those focused on supplementing incomes. In two-thirds of OECD countries, for example, housing rental costs are a greater share of lower-income households’ income than total tax and social contribution payments. 31 Approximate calculation based on median rent burden among the bottom quintile of the income distribution, compared with the “all in” average tax rates and wedges for individuals earning 67 percent of the average wage. See “Average personal income tax and social security contribution rates on gross labor income,” OECD, 2022; Affordable Housing Database, OECD, 2024. Whatever strategy governments pursue, it is important to monitor the impact of interventions over time, keeping in mind the potential for unintended consequences. 32 Such consequences include inefficiencies and market distortions resulting from subsidies and price controls. For example, rent control policies might reduce the supply of rental housing. See, for example, Elizabeth Van Heuvelen, “Back to basics: Subsidy wars,” Finance & Development , IMF, June 2023; and Rebecca Diamond, Timothy McQuade, and Franklin Qian, “The effects of rent control expansion on tenants, landlords, and inequality: Evidence from San Francisco,” American Economic Review , volume 109, number 9, September 2019.

The private sector could also do more

There’s a strong case for companies to care about empowerment. Internally, empowered employees are better able to contribute productively and have less incentive to leave. 33 Natalia Emanuel and Emma Harrington, The payoffs of higher pay: Elasticities of productivity and labor supply with respect to wages , October 2020. Moreover, helping employees save on living costs can produce a labor cost advantage, especially for companies that are internalizing those costs by adopting “living wages.” Externally, some consumers make purchasing decisions based on a company’s reputation as an employer and as a corporate citizen. 34 Enrique Bianchi, Juan Manuel Bruno, and Francisco J. Sarabia-Sanchez, “The impact of perceived CSR on corporate reputation and purchase intention,” European Journal of Management and Business Economics , 2019. Empowerment initiatives can enhance brands, and having a reputation for delivering value inspires loyalty. More broadly, helping more families achieve higher living standards creates a virtuous cycle in which more consumers can afford a broader set of products and services. It also contributes to more stable societies and better business environments.

The private sector’s role in providing jobs—ideally jobs with stability, benefits, and decent working conditions that pay a living wage—is one of the biggest drivers of empowerment. Establishing these job might involve taking a long-term view of the potential for higher productivity through investing in skills, rethinking job roles, and recruiting in ways that expand opportunity for people who might otherwise be stuck in low-wage work. 35 See, for example, Rewriting the script: LA’s opportunity for inclusive economic growth , McKinsey & Company, December 2023; The future of work after COVID-19 , McKinsey Global Institute, February 2021; Reskilling China: Transforming the world’s largest workforce into lifelong learners , McKinsey Global Institute, January 2021; and Tanya Milberg, “The Reskilling Revolution is upon us—by 2030, 1 billion people will be equipped with the skills of the future,” World Economic Forum, April 2023. Large multinationals could influence wages and working conditions—for instance, trying to reduce the precariousness of nonstandard employment (such as temporary, part-time, and on-call work) across their broader value chains.

Through innovation, companies can address unmet demand in the lower-cost end of the markets for housing, energy, food, healthcare, and communication. They could develop new affordable offerings and expand low-cost business models into underserved regions and customer segments. There may be opportunities to pass on productivity-driven savings to consumers, particularly in labor-intensive service sectors such as healthcare that have seen high relative price growth and in other low-productivity sectors such as construction. 36 Previous MGI research has found that improving productivity in construction, healthcare, and education, and keeping food prices in line with best-performing peer countries, could lower empowerment costs by 9 percent globally, on average. See From poverty to empowerment: Raising the bar for sustainable and inclusive growth , McKinsey Global Institute, August 2023, and Reinventing construction through a productivity revolution , McKinsey Global Institute, February 2017.

Indeed, many forward-thinking companies are already embarking on initiatives like these. Further progress starts with identifying profitable ways to deliver positive impact—and the empowerment line could be a useful tool that helps companies prioritize the initiatives with the greatest return on investment.

Economic growth is a prerequisite for empowering households, especially in lower- and middle-income economies. But it’s not enough to solve the last piece of the equation. When costs of essentials rise faster than household incomes, people are priced out; this strains individuals, families, communities, and eventually the social fabric. Ensuring that housing, food, education, healthcare, and other essentials are within reach is part of building more balanced economies where everyone has a measure of security and the opportunity to realize their full potential.

This research was led by Kweilin Ellingrud , a McKinsey senior partner and director of MGI in Minneapolis; Marco Piccitto , a McKinsey senior partner in Milan; Tilman Tacke , an MGI partner in Madrid; Rebecca J. Anderson , an MGI senior fellow in Washington, DC; and Kevin Russell , an MGI senior fellow in Charlotte. Ishaa Sandhu led the working team, which included Nina Chen , Kendyll Hicks , Marty Kang , Elodie Muchembled , Venassa Omoruna , Jali Packer , Munirah Dasu Patel , Marina Salimgareeva , Daniel Tracey , Noah Welgross , and Minéa Wuori .

The article was edited by MGI executive editor Lisa Renaud, with data visualizations by Chuck Burke.

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To Fight Inequality, America Needs to Rethink Its Economic Model

F or decades, economic policy in most liberal democracies has been premised on two core beliefs: that free markets would maximize economic growth, and that we could address inequality through redistribution.

The recent revival of industrial policy, championed by President Biden, is a clear repudiation of the first of these beliefs. It reflects a growing recognition among economists that state intervention to shape markets and steer investment is crucial for fostering innovation, protecting strategically important sectors like semi-conductors, and tackling the climate emergency.

But we must also reassess the second belief—that taxes and transfers alone can address the vast inequalities that have brought American democracy to such a perilous juncture. Doing so will lead us towards a more fundamental rethink of our economic institutions, and the values that guide them.

This is partly a pragmatic response to economic reality. The massive increase in inequality since the 1980s in America was mostly driven not by a reduction in redistribution, but by the growing gap in earnings between low skill workers, whose wages have suffered an unprecedented period of stagnation, and college-educated professionals whose salaries have continued to soar. And while inequality has increased in most advanced economies, that it is so much higher in the U.S. compared to Europe is mostly the result of bigger gaps in earnings than lower levels of redistribution. In other words, even if America were to increase the generosity of the welfare state to European levels it would still be much more unequal.

But the need to look beyond redistribution is about more than economics, it is about resisting the narrow focus on money that dominates most debates about inequality, and the tendency to reduce our interests as citizens to those of consumers. While government transfers are essential for making sure that everyone can meet their basic needs, simply topping up people’s incomes fails to recognize the importance of work as a source of independence, identity, and community, and does nothing to address the insecurity faced by gig-economy workers, or the constant surveillance of employees in Amazon warehouses.

This is not purely a moral issue. According to a recent paper by economists at Columbia and Princeton, the Democratic Party’s shift towards a “compensate the losers ” strategy in the 1970s and 1980s—taxing high earners to fund welfare payments to the poor—played a key role in driving away less educated voters, who disproportionately support “pre-redistributive” policies like higher minimum wages and stronger unions.

Things are moving in the right direction. President Biden has put “good jobs” at the centre of his economic agenda, claiming that “a job is about [a] lot more than a pay cheque. It’s about your dignity. It’s about respect.” Leading economists such as Dani Rodrik at Harvard and Daron Acemoglu at the Massachusetts Institute of Technology’s have started to challenge the prevailing orthodoxy that such jobs are an inevitable by-product of a well-functioning market economy. This shift of focus towards the production or supply side of the economy has been variously termed “ productivism ”, “ modern supply-side economics ” and “ supply-side progressivism .”

Read More: Why Joe Biden is Running on the Economy

And yet, to grasp the full potential of these ideas we must look beyond economics to philosophy. Contemporary thinkers such as Michael Sandel and Elizabeth Anderson have done much to put questions about work back on the agenda. But for a systematic vision of a just society that recognizes the fundamental importance of work we should revisit the ideas of arguably the 20th-century’s greatest political philosopher, John Rawls—an early advocate for what we would now call “pre-distribution,” who argued that every citizen should have access to good jobs, a fair share of society’s wealth, and a say over how work is organized.

The publication of Rawls’s magnum opus A Theory of Justice in 1971 marks a watershed moment in the history of political thought, drawing favourable comparisons to the likes of John Stuart Mill, Immanuel Kant, even Plato. Rawls’s most famous idea is a thought experiment called the “original position.” If we want to know what a fair society would look like, he argued, we should imagine how we would choose to organize it if we didn’t know what our individual position would be—rich or poor, Black or white, Christian of Muslim— as if behind a “veil of ignorance.”

Our first priority would be to secure a set of “basic liberties,” such as free speech and the right to vote, that are the basis for individual freedom and civic equality.

When it comes to the economy, we would want “fair equality of opportunity,” and we would tolerate a degree of inequality so that people have incentives to work hard and innovate, making society richer overall. But rather than assuming that the benefits would trickle down to those at the bottom, Rawls argued that we would want to organize our economy so that the least well-off would be better off than under any alternative system—a concept he called the “difference principle.”

This principle has often been interpreted as justifying a fairly conventional strategy of taxing the rich and redistributing to the poor. But Rawls explicitly rejected “welfare state capitalism” in favour of what he called a “property-owning democracy.” Rather than simply topping up the incomes of the least well off, society should “put in the hands of citizens generally, and not only of a few, sufficient productive means for them to be fully cooperating members of society.”

Doing so is essential for individual dignity and self-respect, he argued, warning that “Lacking a sense of long-term security and the opportunity for meaningful work and occupation is not only destructive of citizens’ self-respect but of their sense that they are members of society and not simply caught in it. This leads to self-hatred, bitterness, and resentment” – feelings that could threaten the stability of liberal democracy itself. A focus on work is also necessary for maintaining a sense of reciprocity since every able citizen would be expected to contribute to society in return for a fair reward.

Rawls’s philosophy offers the kind of big picture vision that has been missing on the center-left for a generation—a unifying alternative to ‘identity politics’ grounded in the best of America’s political traditions. It also points towards a genuinely transformative economic programme that would address the concerns of long-neglected lower-income voters, not simply for higher incomes but for a chance to contribute to society and to be treated with respect.

At the heart of this vision is the idea that productive resources—both human capital (skills) and ownership of physical capital (like stocks and shares)—should be widely shared. People’s incomes would still depend on their individual effort and good fortune, but wages and profits would be more equal, and there would be less need for redistribution.

How might we bring this about?

First, we would need to ensure equal access to education, irrespective of family background. Sadly, the reality in America today is that children from the richest fifth of households are fivetimes more likely to get a college degree than those from the poorest fifth. Achieving true equality of opportunity is a generational challenge, but the direction should be towards universal early years education, school funding based on need rather than local wealth, and a higher education system where tuition subsidies and publicly-funded income-contingent loans guarantee access to all.

We also need to shift focus towards the more than half of the population who don’t get a four-year college degree. Our obsession with academic higher education—justified in part on the basis that this will generate growth, which in turn will benefit non-graduates—is simply the educational equivalent of trickle-down economics. At the very least, public subsidies should be made available on equal terms for those who want to follow a vocational route, as the U.K. is doing through the introduction of a Lifelong Learning Entitlement from 2025, providing every individual with financial support for four years of post-18 education, covering both long and short courses, and vocational and academic subjects.

Second, we must address the vastly unequal distribution of wealth . Thewealthiest 10 % of Americans have around 70 % of all personal wealth compared to roughly 2% the entire bottom half. Sensible policies like guaranteed minimum interest rates for small savers and tax breaks to encourage employee share ownership would encourage middle-class savings. But to shift the dial on wealth inequality we should be open to something more radical, like a universal minimum inheritance paid to each citizen at the age of eighteen, funded through progressive taxes on inheritance and wealth. If developments in AI push more income towards the owners of capital, something like this will become necessary.

Finally, we need to give workers real power to shape how companies are run. The idea that owners, or shareholders, should make these decisions is often treated as an immutable fact of economic life. But this “shareholder primacy” is neither natural nor inevitable about, and in most European countries employees have the right to elect representatives to company boards and to ‘works councils’ with a say over working conditions. This system of ‘co-management’ allows owners and worker to strike a balance between pursuing profit and all the other things we want from work – security, dignity, a sense of achievement, community – in a way that makes sense for a particular firm. The benefits of co-management appear to come at little or no cost in terms of profits or competitiveness, are popular with managers, and may even increase business investment and productivity.

Critics will no doubt denounce these ideas as “socialism.” But as we have seen, they have impeccable liberal credentials, and are perfectly compatible with the dynamic market economy that is so vital both for individual freedom and economic prosperity. Neither are they somehow “un-American.” As Elizabeth Anderson has reminded us , America was the great hope of free market egalitarians from Adam Smith through to Abraham Lincoln, whose dreams of a society of small-scale independent producers were dashed by the industrial revolution, and would have been horrified by the hierarchy and subservience of contemporary capitalism. Rawls’s ideal of property-owning democracy can help us revive this vision for the 21 st century.

Still, even sympathetic readers might wonder whether there is any point talking about a new economic paradigm when the U.S. has failed even to raise the Federal minimum wage since 2009. But this would be to ignore the lessons of history. As the neoliberal era comes to an end, we should learn from its leading architects Milton Friedman and Friedrich Hayek, who were nothing if not bold, and saw their ideas go from heresy to orthodoxy in a single generation. As Friedman put it “Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around."

It often takes a generation or two before the ideas of truly great thinkers start to shape real politics. Now, for the first time since the publication of A Theory of Justice just over half a century ago, there is an urgent need and appetite for systematic political thinking on a scale that only a philosopher like Rawls can provide. In the face of widespread cynicism, even despair about the American project, his ideas offer a hopeful vision of the future whose time has come.

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20 Ways How Globalization Affects Daily Life: An Insider’s Guide

By: Author Valerie Forgeard

Posted on September 14, 2023

Categories Society

Globalization is often considered an abstract concept, discussed in the realms of academia, business conferences, or geopolitical summits. Yet, its implications permeate the fabric of our daily lives in ways so integrated that they often go unnoticed.

From the morning cup of coffee from beans grown in a distant country to the smartphone in your hand assembled from parts sourced globally, the tendrils of globalization impact nearly every facet of our existence.

But what exactly is globalization, and how does it influence not just the macro but also the micro aspects of our lives? Is it merely the flow of goods across borders, or does it also encapsulate the exchange of cultures, ideas, and values? Most importantly, how do these global connections affect our choices, opportunities, and even challenges?

In this article, we’ll explore the multifaceted impact of globalization on our everyday experiences. We’ll delve into its effects on what we eat, how we work, the way we socialize, and even how we perceive the world.

Whether you view globalization as a force for good or a complex web of challenges, understanding its influence is crucial for navigating our interconnected world.

Key Takeaways

Globalization has led to increased interaction and integration among people, companies, and governments worldwide, facilitated by international trade and investment aided by information technology.
Globalization has had a significant impact on the economy and trade, making products from around the world readily available, but also subject to trade regulations and currency exchange rates.
Cultural homogenization and the dominance of global brands are consequences of globalization, shaping perceptions about beauty, success, and lifestyle through international media and Hollywood movies.
Technological advancements accelerated by globalization have both brought opportunities and created inequality in access to technology, emphasizing the need for tech equity and equal access for everyone.

20 Ways Globalization Influences Our Everyday Life

Globalization isn’t just a buzzword; it’s a complex, multifaceted phenomenon that has a direct impact on our daily lives.

Whether you’re sipping on Colombian coffee or chatting with a friend halfway across the globe via social media, you’re experiencing the ripple effects of a world more interconnected than ever.

But what are the subtle and not-so-subtle ways this grand integration of economies, cultures, and technologies affects us?

Here are 20 impactful examples:

Food Choices : Gone are the days when local cuisine was all you could enjoy. Globalization lets you savor dishes from around the world without leaving your hometown.
Clothing Trends : The clothes you wear may be designed in one country, manufactured in another, and sold worldwide, illustrating globalization’s role in shaping fashion.
Job Opportunities : Access to global job markets offers diverse career opportunities, allowing talent and skill to move more freely across borders.
Cultural Exchange : Festivals, art, and literature from various parts of the world are now more accessible, enriching local cultures.
Healthcare : Medical advancements and techniques are shared rapidly between countries, improving healthcare globally.
Entertainment : From Hollywood movies to K-pop, entertainment is one of the most widely shared cultural exports.
Technology : Innovations and gadgets are universally available, making tech one of globalization’s most tangible impacts on daily life.
Internet Access : The global reach of the internet allows for immediate communication and information sharing, impacting everything from social relations to education.
Travel : Globalization has made international travel more common, opening up the world for exploration and intercultural experiences.
Economic Fluctuations : Events in one part of the world can influence your local economy, impacting everything from job stability to prices at the supermarket.
Consumer Goods : The wide array of products available in supermarkets and stores showcases how global supply chains bring diverse goods to your doorstep.
Education : Globalization impacts curricula, diversifying the topics studied and providing a more comprehensive worldview.
Social Issues : Awareness and activism have become global, with campaigns and movements reaching beyond borders to effect change.
Financial Markets : Your investment portfolio is likely influenced by global events, adding both opportunities and risks.
Immigration : An interconnected world means more diverse communities, enriching local culture but also sparking debates about immigration policy.
Language : English has become the global lingua franca, influencing local languages and making English proficiency a useful global skill.
Climate Change : Environmental issues are now global concerns, requiring international cooperation for solutions.
Political Influence : Global organizations like the UN and WHO have significant sway over local policies and public health.
Resource Distribution : Globalization affects how natural resources are allocated and consumed, impacting sustainability.
Online Shopping : From global giants like Amazon to small businesses with international shipping, you can buy almost anything from anywhere.

Understanding these influences will make you more aware of how you are a part of this intricate global web and help you navigate the opportunities and challenges that come with it.

The Concept and Evolution of Globalization

Let’s delve into the concept and evolution of globalization. It’s not as complex as you’d think. Essentially, it is a process that involves the interaction and integration among people, companies, and governments worldwide. It’s fostered by international trade and investment aided by information technology.

However, there are political implications. As countries become more interconnected, national sovereignty can be compromised, leading to a globalization backlash.

This isn’t always negative, though. Economic data shows that globalization has played an integral part in poverty reduction in many parts of the world. But let’s remember: freedom is paramount – we must ensure our global ties don’t infringe upon this right while striving for prosperity.

Now that we’ve understood its basic premise, let’s explore further how this phenomenon impacts the economy and trade.

Impact of Globalization on Economy and Trade

In our exploration of the impact of globalization on economy and trade, we’ll delve into the nuances of global trade expansion and how it’s driving economic growth.

We’re set to dissect the symbiotic relationship between these two critical aspects, analyzing hard data to reveal patterns and trends that may not be immediately apparent.

Our discussion will combine a clear, concise writing style with an analytical interpretation of economic data, offering in-depth insights into this complex facet of global affairs.

Global Trade Expansion

Global trade expansion has drastically changed our daily lives, making products from around the world readily available. We’ve benefitted from an array of goods and services previously unimaginable. Our choices aren’t limited by geographical boundaries anymore. Yet, it’s not without its strings attached.

Trade regulations play a crucial role in this process, often acting as double-edged swords. They can protect us from substandard imports but may also restrict market freedom.

Currency exchange rates too have a significant impact on global trade dynamics. A fluctuating currency can affect purchasing power significantly, dictating what we can afford and when.

Understanding these complexities is vital for maintaining economic stability and personal financial health amidst the ever-evolving global marketplace.

Economic Growth Influence

Economic growth’s influence on society can’t be overstated, as it directly impacts job creation, increases the standard of living, and aids in poverty reduction. We’re all integrated into this global system where economic affairs influence our daily lives.

Job Creation: With economic growth, businesses thrive and expand leading to more employment opportunities.
Standard of Living: As economies grow, incomes generally increase which enhances our living standards.
Poverty Reduction: Economic growth fuels poverty reduction initiatives through wealth redistribution mechanisms.

Inflation control is crucial for stable economic progression; unchecked inflation can erode purchasing power and destabilize economies. On the other hand, poverty reduction remains a key goal for any economy because we believe in freedom from want. Understanding these factors helps us appreciate how closely our lives are linked with global economics.

Globalization and Its Influence on Culture

In the vortex of globalization, we’re witnessing an increasing trend towards cultural homogenization. This phenomenon is largely influenced by the omnipotent reach of global media. This sweeping wave isn’t just reshaping our existing identities, but it’s also leading to an alarming loss of tradition. Local customs and practices are being overshadowed or replaced altogether.

Analyzing this from an economic perspective, there’s a palpable shift in consumer behavior patterns globally. This shift is reinforcing the homogenization process further. It is something we need to delve into with urgency.

Cultural Homogenization

You’re likely noticing a trend towards cultural homogenization in your daily life, aren’t you? This is the reality of our globalized world.

We’re witnessing an intensification of cultural assimilation and a worrying diversity erosion.

Global Brands Domination : Multinational corporations are spreading their influence worldwide, resulting in identical lifestyles from New York to Nairobi.
Media Influence : International media and Hollywood movies are shaping our notions about beauty, success, and lifestyle.
Language Uniformity : English has emerged as the de facto global language, threatening linguistic diversity.

While this simplifies communication and synchronization, it also jeopardizes local cultures’ uniqueness.

Hence we must strive for balance – cherishing globalization’s convenience without surrendering our distinct cultural identities entirely to its march.

Global Media Influence

Hollywood’s influence can’t be denied, shaping perceptions of success and beauty across the globe. We’ve seen this power magnified by the digital divide, where access to global media is skewed in favor of developed nations. This disparity is a stark reminder that while we’re more connected than ever, not all connections are equal.

Media censorship adds another layer of complexity. We face a struggle between freedom of expression and safeguarding cultural norms. As our world becomes more interconnected through global media, it’s crucial for us to strike a balance between embracing new ideas and maintaining our unique cultural identities.

Yet, with each passing day, we witness how global media influence potentially leads to the loss of tradition.

Loss of Tradition

Traditions aren’t as revered as they once were, with global media often prioritizing modern trends over preserving cultural heritage. This shift has profound impacts on our societies, particularly in relation to traditional crafts preservation and the local folklore significance.

We’re witnessing a decline in age-old craft techniques due to lack of commercial appeal; artisans are forced to adopt mass production methods to survive.

Local customs and lore lose their relevance when overshadowed by popular global narratives.

The undermining of unique traditions can lead to cultural homogenization, a loss that’s irreversible.

We must promote the importance of preserving tradition while embracing progress. Let’s champion for economic policies that support local artisans, encourage folklore education, and resist the erasure of our diverse cultures.

The Role of Globalization in Technology Advancements

In today’s world, it’s hard to ignore how globalization has sped up technological advancements, dramatically changing our daily life. We’re seeing a growing digital divide; the gap between those who have easy access to technology and those who don’t.

This technological dependency is both a blessing and a curse. It brings unprecedented access to information and opportunities, yet it also fosters inequality among nations and individuals. For instance, citizens of developed countries enjoy high-speed internet and advanced devices, while many in developing nations lack basic digital resources.

We must strive for tech equity, ensuring that everyone benefits from these innovations regardless of their geographical location or socio-economic status. Only then can we truly harness the power of globalization without compromising freedom or equality.

Effects of Globalization on Environment and Sustainability

You’re probably aware that the rapid pace of development can sometimes come at a cost to our environment and sustainability efforts. Globalization, while offering numerous benefits, has also led to significant challenges for our planet.

Climate change – We’re seeing an increase in greenhouse gas emissions as industries expand globally, leading to rising temperatures.
Biodiversity loss – The rampant exploitation of natural resources is resulting in the extinction of numerous species.
Resource depletion – Our high-consumption lifestyle is depleting finite resources at an alarming rate.

We must understand these effects and act responsibly. As advocates for freedom, we should strive for a balance between progress and preservation; economic growth shouldn’t compromise our home’s longevity.

Globalization and Its Implications on Health and Lifestyle

It’s crucial to note that the spread of ideas and practices through globalization can also significantly impact health and lifestyle choices worldwide. We’ve seen a global diet emerge, leading to health disparities among populations.

As we analyze this economic data, we’re reminded of our freedom to make individual choices, but also the need for collective responsibility in addressing these disparities. This interplay between personal liberty and public health is a complex issue shaped by globalization. As we venture into future prospects: globalization in the coming decades, let’s consider its potential impacts on our global society.

Future Prospects: Globalization in the Coming Decades

Looking ahead, we’ll likely see even more dramatic shifts in health and lifestyle as a result of continued worldwide connectivity. This change will greatly impact our global workforce and immigration policies.

Global Workforce: As virtual workspaces become commonplace, we’re looking at a future where geographical boundaries won’t limit job opportunities. This could mean greater freedom to choose where we live and work.
Immigration Policies: We anticipate these changes will trigger re-evaluation of immigration policies worldwide. The focus may shift from physical migration to digital competence.
Health & Lifestyle: With globalization promoting widespread access to diverse food and lifestyle choices, we could see significant shifts in global health trends.

In this interconnected era, it’s essential that we adapt swiftly while preserving our values of freedom and individuality.

In sum, we’ve seen globalization’s significant impact on our lives. It’s shaped our economies, cultures, tech advancements, and even health.

While it brings opportunities for growth, it also presents challenges like environmental sustainability.

As we move forward, understanding these complexities is crucial to navigate the global arena effectively.

Let’s continue to analyze and adapt to ensure a balanced and sustainable future in this interconnected world.

Frequently Asked Questions

How has globalization affected the education system worldwide.

We’ve seen globalization greatly impact education through cultural exchange and increased technological accessibility. It’s broadened our perspectives, offered new learning tools, and connected us globally despite geographical boundaries.

What Is the Impact of Globalization on Local Businesses and Industries?

We’ve observed that globalization intensifies market competition, often challenging local businesses. It also shifts consumer preferences, making us adapt to global trends. Yet, it offers opportunities for growth if we can navigate these changes wisely.

How Does Globalization Influence Immigration Policies Across Different Countries?

We’ve observed that globalization influences policy evolution, altering immigration laws globally. It promotes cultural integration, and these changes directly reflect in our societies, impacting who we welcome and how we interact together.

How Has Globalization Affected Income Disparity and Wealth Distribution?

We’ve seen how trade liberalization, a result of globalization, has impacted income disparity. It’s led to global inequality, with wealth concentrated among the few while many others struggle. We must analyze this further.

Can Globalization Have an Impact on Political Systems and Governance?

Absolutely, we’re seeing globalization’s influence on nationalism and international diplomacy dynamics. It’s reshaping political systems and governance worldwide, impacting how nations interact and manage themselves in this interconnected world.

From the world wide web to AI: 11 technology milestones that changed our lives

The world wide web is a key technological milestone in the past 40 years. Image: Unsplash/Ales Nesetril

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.chakra .wef-9dduvl{margin-top:16px;margin-bottom:16px;line-height:1.388;font-size:1.25rem;}@media screen and (min-width:56.5rem){.chakra .wef-9dduvl{font-size:1.125rem;}} Explore and monitor how .chakra .wef-15eoq1r{margin-top:16px;margin-bottom:16px;line-height:1.388;font-size:1.25rem;color:#F7DB5E;}@media screen and (min-width:56.5rem){.chakra .wef-15eoq1r{font-size:1.125rem;}} Artificial Intelligence is affecting economies, industries and global issues

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.chakra .wef-1nk5u5d{margin-top:16px;margin-bottom:16px;line-height:1.388;color:#2846F8;font-size:1.25rem;}@media screen and (min-width:56.5rem){.chakra .wef-1nk5u5d{font-size:1.125rem;}} Get involved with our crowdsourced digital platform to deliver impact at scale

Stay up to date:, emerging technologies.

It’s been 40 years since the launch of the Apple Macintosh personal computer.
Since then, technological innovation has accelerated – here are some of the most notable tech milestones over the past four decades.
The World Economic Forum’s EDISON Alliance aims to digitally connect 1 billion people to essential services like healthcare, education and finance by 2025.

On 24 January 1984, Apple unveiled the Macintosh 128K and changed the face of personal computers forever.

Steve Jobs’ compact, user-friendly computer introduced the graphical user interface to the world, marking a pivotal moment in the evolution of personal technology.

Since that day, the rate of technological innovation has exploded, with developments in computing, communication, connectivity and machine learning expanding at an astonishing rate.

Here are some of the key technological milestones that have changed our lives over the past 40 years.

Have you read?

9 ways ai is helping tackle climate change, driving trust: paving the road for autonomous vehicles, these are the top 10 emerging technologies of 2023: here's how they can impact the world, 1993: the world wide web.

Although the internet’s official birthday is often debated, it was the invention of the world wide web that drove the democratization of information access and shaped the modern internet we use today.

Created by British scientist Tim Berners-Lee, the World Wide Web was launched to the public in 1993 and brought with it the dawn of online communication, e-commerce and the beginning of the digital economy.

Despite the enormous progress since its invention, 2.6 billion people still lack internet access and global digital inclusion is considered a priority. The World Economic Forum’s EDISON Alliance aims to bridge this gap and digitally connect 1 billion people to essential services like healthcare, education and finance by 2025.

1997: Wi-Fi

The emergence of publicly available Wi-Fi in 1997 changed the face of internet access – removing the need to tether to a network via a cable. Without Wi-Fi, the smartphone and the ever-present internet connection we’ve come to rely on, wouldn’t have been possible, and it has become an indispensable part of our modern, connected world.

1998: Google

The launch of Google’s search engine in 1998 marked the beginning of efficient web search, transforming how people across the globe accessed and navigated online information . Today, there are many others to choose from – Bing, Yahoo!, Baidu – but Google remains the world’s most-used search engine.

2004: Social media

Over the past two decades, the rise of social media and social networking has dominated our connected lives. In 2004, MySpace became the first social media site to reach one million monthly active users. Since then, platforms like Facebook, Instagram and TikTok have reshaped communication and social interaction , nurturing global connectivity and information sharing on an enormous scale, albeit not without controversy .

Most popular social networks worldwide as of January 2024, ranked by number of monthly active users

2007: The iPhone

More than a decade after the first smartphone had been introduced, the iPhone redefined mobile technology by combining a phone, music player, camera and internet communicator in one sleek device. It set new standards for smartphones and ultimately accelerated the explosion of smartphone usage we see across the planet today.

2009: Bitcoin

The foundations for modern digital payments were laid in the late 1950s with the introduction of the first credit and debit cards, but it was the invention of Bitcoin in 2009 that set the stage for a new era of secure digital transactions. The first decentralized cryptocurrency, Bitcoin introduced a new form of digital payment system that operates independently of traditional banking systems. Its underlying technology, blockchain, revolutionized the concept of digital transactions by providing a secure, transparent, and decentralized method for peer-to-peer payments. Bitcoin has not only influenced the development of other cryptocurrencies but has also sparked discussions about the future of money in the digital age.

2014: Virtual reality

2014 was a pivotal year in the development of virtual reality (VR) for commercial applications. Facebook acquired the Oculus VR company for $2 billion and kickstarted a drive for high-quality VR experiences to be made accessible to consumers. Samsung and Sony also announced VR products, and Google released the now discontinued Cardboard – a low-cost, do-it-yourself viewer for smartphones. The first batch of Oculus Rift headsets began shipping to consumers in 2016.

2015: Autonomous vehicles

Autonomous vehicles have gone from science fiction to science fact in the past two decades, and predictions suggest that almost two-thirds of registered passenger cars worldwide will feature partly-assisted driving and steering by 2025 . In 2015, the introduction of Tesla’s Autopilot brought autonomous features to consumer vehicles, contributing to the mainstream adoption of self-driving technology.

Cars Increasingly Ready for Autonomous Driving

2019: Quantum computing

A significant moment in the history of quantum computing was achieved in October 2019 when Google’s Sycamore processor demonstrated “quantum supremacy” by solving a complex problem faster than the world’s most powerful supercomputers. Quantum technologies can be used in a variety of applications and offer transformative impacts across industries. The World Economic Forum’s Quantum Economy Blueprint provides a framework for value-led, democratic access to quantum resources to help ensure an equitable global distribution and avoid a quantum divide.

2020: The COVID-19 pandemic

The COVID-19 pandemic accelerated digital transformation on an unprecedented scale . With almost every aspect of human life impacted by the spread of the virus – from communicating with loved ones to how and where we work – the rate of innovation and uptake of technology across the globe emphasized the importance of remote work, video conferencing, telemedicine and e-commerce in our daily lives.

In response to the uncertainties surrounding generative AI and the need for robust AI governance frameworks to ensure responsible and beneficial outcomes for all, the Forum’s Centre for the Fourth Industrial Revolution (C4IR) has launched the AI Governance Alliance .

The Alliance will unite industry leaders, governments, academic institutions, and civil society organizations to champion responsible global design and release of transparent and inclusive AI systems.

2022: Artificial intelligence

Artificial intelligence (AI) technology has been around for some time and AI-powered consumer electronics, from smart home devices to personalized assistants, have become commonplace. However, the emergence of mainstream applications of generative AI has dominated the sector in recent years.

In 2022, OpenAI unveiled its chatbot, ChatGPT. Within a week, it had gained over one million users and become the fastest-growing consumer app in history . In the same year, DALL-E 2, a text-to-image generative AI tool, also launched.

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License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

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Books | The skateboarders’ experience, explored in…

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Books | the skateboarders’ experience, explored in essays by josé vadi, in 'chipped,' matters of injury, aging, freedom from a car, camaraderie, music and more..

“Skateboarding is truly rebellious and punk in its ethos,” said author José Vadi. “Nobody should care how old someone is just as much as someone shouldn’t care about their sexual orientation, gender, economic background. None of those things should be the determining factor of your ability to enjoy yourself on a skateboard.”

Vadi explores these ideas and more in his sophomore collection of essays, “Chipped: Writing from a Skateboarder’s Lens.”

“Having an active relationship with skateboarding means having an active relationship with your body — but also the realization of your own mortality,” Vadi said in a recent phone interview from his Sacramento home. “That happens every time you try a trick, whether or not you’re gonna land or get injured, and as your body changes over time.”

As a skater, he has been keenly aware of his changing body with each passing decade. The book’s second essay documents a bad fall he had in 2019 and the excruciating pain that lingered for weeks. His description of the experience, like much of the collection, is written with sharp prose.

“As an older skater who is graying, you definitely feel self-conscious, not just because of your age but your ability at your age, or lack thereof,” he said.

Vadi grew up in Pomona and began skating in the mid-’90s, on the cusp of his teenage years. The book transitions between skating around Southern California’s San Gabriel Valley and Inland Empire and skating the streets of San Francisco and Berkeley. He also looks at how much has changed since he began.

“In the wake of all these new skate parks that have developed over the past 20 years, these kids are so good out of the gate. The baseline barometer of what is considered proficient in skateboarding today is what we would consider pro in the ’90s,” he said.

The book provides insight into what it’s like for kids skating out of suburbia to find themselves — or other like-minded skaters who are also exploring the freedom the board bestows.

“You’re so bound to a car, and skateboarding gives you a vehicle, metaphorically and literally, to re-explore your world,” he said. “Growing up in the suburbs, things can get very dull, very quick, and skateboarding allows you to reenergize and reimagine an environment.”

That reimagining can be literal, such as turning an empty industrial space into a landscape bursting with creative possibilities. “It’s turning a loading dock into a skatepark,” he says.

The essays also illustrate the impact that skating had on popular culture, touching on MTV, skating publications such as Thrasher Magazine, and videotapes of riders that got passed around skating scenes and shops around the country.

Music also plays a large role in the book. Vadi writes about how skating incorporated punk, hip-hop, heavy metal and other genres that helped redefine its culture. In one essay, he investigates the connections between jazz and skating, arguing that the musician and composer known as Sun Ra was a skater though he never stepped on a board.

“If I’m writing through skateboarder’s lens and am really going to try to own that perspective, it has to be inclusive of as much of those different strands as possible,” he said.

As much as the book is about skating, it also reminds readers of the beauty in the documentation of ourselves and the interests we acquire through our lived experiences.

“I feel like ‘Chipped’ is a redocumentation by way of articulation,” he said. “It reflects this larger need to document … and to articulate the many ways that this thing that we care about can impact someone.”

“The point is not to be better than anyone else, or to necessarily compete,” he said. “The point is to enjoy the act itself and in camaraderie with others.”

About the book

“CHIPPED: Writing from a Skateboarder’s Lens”

José Vadi

Soft Skull. 256 pp. $26.

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Cebu City is 436th Best City to Live in 2024 – study

Cebu City Skyline | Stock Photo

CEBU CITY, Philippines — A study from experts in Oxford in the United Kingdom ranked Cebu as the 436th Best City to Live in 2024.

The Oxford Economics, an independent global advisory firm, recently unveiled the results of its annual Oxford Economics Global Cities Index 2024.

The Oxford Economics Global Cities Index is a ranking system that evaluates the world’s 1,000 largest urban economies in terms of the following categories: economics, human capital, quality of life, environment and governance.

The index is also considered a valuable tool for business leaders, policymakers and academics not only to gauge a city’s performance but also in coming up with informed decisions.

“The Global Cities Index scores cities based on how they are performing today,” the report stated.

For 2024, they ranked Cebu City 436th in the list of 1,000 cities, next to Changwon in South Korea, the capital and largest city in Gyeongsangnam-do province.

A total of eight cities in the Philippines were included in the list, including the country’s capital Manila which ranked 256th.

READ MORE: EXPLAINER: What does ‘competitive’ mean for cities, LGUs in PH?

The Queen City of the South ranked fairly when it comes to economics, landing at 379th. However, it belonged in the bottom half of the list in the Quality of Life, at the 683rd spot.

In the study, Quality of Life covers life expectancy, housing expenditure, income per person, recreation and cultural sites, income equality, and internet speed.

“Evaluating quality of life metrics in the index underscores the importance of urban policies that not only prioritize economic prosperity but also health, equality, and cultural vibrancy, enhancing residents’ overall wellbeing,” it added.

Surprisingly, the city ranked high in the Environment Category, which evaluates a city’s commitment to environmental sustainability and its predisposition to climate change risks, earning the 24th spot.

This despite continued deforestation and unregulated development in its upland portions that prompted city planners to sound the alarm.

In the same category, Bacolod City, the capital of Negros Occidental, belonged in the list of top 20 cities, at the 12th spot. Manila landed on the 238th spot.

In terms of Human Capital, the category that measures the city’s population knowledge and skills, Cebu City ranked 502nd out of 1,000 cities worldwide.

Meanwhile, for the Governance category, experts at Oxford Economics disclosed that the method in assessing a city’s governance also factored in the performance of the national government.

This means all cities in a certain country in the list have the same score. For Philippine cities, each ranked 614th in the Governance category.

Top 10 cities

Experts from Oxford Economics ranked New York City in the United States in the top spot. It was followed by London of the United Kingdom, ranking second.

San Jose, another city in the United States, rounded up the top three.

Tokyo, Japan’s capital, is the only Asian city that made it to the top 10 list, landing on the 4th spot. The others were Paris, France (5th), Seattle, U.S. (6th), Los Angeles, U.S. (7th), San Francisco, U.S. (8th), Melbourne, Australia (9th) and Zurich, Switzerland (10th).

Singapore, one of Asia’s tiger economies, ranked 42nd in the list, next to Seoul, South Korea’s capital.

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The Sunday Read: ‘Why Did This Guy Put a Song About Me on Spotify?’

The answer involves a remarkable — and lucrative, and ridiculous — scheme to game the way we find music today..

By Brett Martin

Read by Eric Jason Martin

Produced by Adrienne Hurst and Aaron Esposito

Narration produced by Tanya Pérez and Krish Seenivasan

Edited by John Woo

Original music by Aaron Esposito

Engineered by Sophia Lanman and Devin Murphy

Listen and follow The Daily Apple Podcasts | Spotify

Have you heard the song “Brett Martin, You a Nice Man, Yes”?

Probably not. On Spotify, “Brett Martin, You a Nice Man, Yes” has not yet accumulated enough streams to even register a tally. Even Brett Martin, a contributing writer for The New York Times Magazine and the titular Nice Man, didn’t hear the 1 minute 14 second song until last summer, a full 11 years after it was uploaded by an artist credited as Papa Razzi and the Photogs.

When Martin stumbled on “Brett Martin, You a Nice Man, Yes,” he naturally assumed it was about a different, more famous Brett Martin: perhaps Brett Martin, the left-handed reliever who until recently played for the Texas Rangers; or Brett Martin, the legendary Australian squash player; or even Clara Brett Martin, the Canadian who in 1897 became the British Empire’s first female lawyer. Only when the singer began referencing details of stories that he made for public radio’s “This American Life” almost 20 years ago did he realize the song was actually about him. The song ended, “I really like you/Will you be my friend?/Will you call me on the phone?” Then it gave a phone number, with a New Hampshire area code.

So, he called.

There are a lot of ways to listen to ‘The Daily.’ Here’s how.

We want to hear from you. Tune in, and tell us what you think. Email us at [email protected] . Follow Michael Barbaro on X: @mikiebarb . And if you’re interested in advertising with The Daily, write to us at [email protected] .

Additional production for The Sunday Read was contributed by Isabella Anderson, Anna Diamond, Sarah Diamond, Elena Hecht, Emma Kehlbeck, Tanya Pérez, Frannie Carr Toth and Krish Seenivasan.

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