Summary of Chapter 2: WHAT IS ECONOMICS? by Ronald Nash


In chapter two, What is Economics?, Ron Nash argues that economics studies the choices people make with regard to scarce resources which is an unavoidable feature of human existence.  Economic choices often have nothing to do with money, but with what people value most (e.g., goods, plus time, plus priorities=choices presented).   “Stand in line for a ticket or pay someone to do it for me?” the former option may cost less money, but the latter one reveals that my time is more important.  Hence, the two main ingredients in any economic study are scarcity and choice.

When we are talking about Micro and Macroeconomics the former concerns smaller individual persons, households and businesses, whereas the latter examines the aggregate of the micro economic choices, it studies a nation’s economy as a whole.  Here, to best understand how the whole functions, one must understand how the particular human choices are made.  When considering Positive and Normative economics we must understand that each has its place.  The former is descriptive, it tells us what is, the latter is prescriptive, it tells us what ought to be.  When policies intended to help the poor—again define?—actually hurt them, it’s time to re-consider the positive/normative angle being used.

Economics as a Way of Thinking considers the issue of incentives.  The key to economic growth are the incentives people have presented.  The critical factor here is whether or not the incentives given actually empower or enslave people.

Involved here is the benefit to cost ratio (e.g., are unemployment programs more lucrative than getting a job?).  The greater the benefits people expect to receive from the alternatives the more people are likely to choose that option.  The greater the costs expected from an alternative, the fewer people are likely to select it.

Moreover, everything has a price.  Scarcity demands cost for everything.  Again, scarcity, choice and personal value are reflected in people’s decisions where the need to make choices and the relative value placed on given options is seen (i.e., one man’s trash, is another man’s treasure). Perhaps the most alarming issue is that of antipoverty programs that don’t work and remain intact which perpetuate the poverty.  When long-range impact is not considered in any given policy, it’s merely putting a bandage over a cancer.  See quote pg. 21 second  paragraph.

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