I would suggest the main importance of economics is helping society decide on the optimal allocation of our limited resources. The fundamental problem of economic is said to be scarcity - the idea that wants (demand) is greater than the resources we have. Frequently we face choices on:
What to produceHow to produceFor whom to Produce
Economics helps to decide on questions like this. More specifically economics is important in these areas.
How to manage the macro economy.
Economists can advise governments how to manage the economy and avoid problems such as inflation and unemployment. Both inflation and mass unemployment can be devastating for society. Economists argue that both can be avoided through careful economic policies. For example:
Policies to reduce unemploymentPolicies to reduce inflation
If economics can help reduce unemployment, then it can make a big improvement to economic welfare. For example, the mass unemployment of the 1930s great depression, led to much political instability and the rise of extremist political parties across Europe.
However, the problem is that economists may often disagree on the best solution to these problems. For example, at the start of the great depression in 1930, leading economists in the UK Treasury suggested that the UK needed to balance the budget; i.e. higher taxes, lower unemployment benefits. But, this made the recession deeper and led to a fall in demand.
It was in the great depression that John Maynard Keynes developed his general theory of Employment, Income and Money. He argued that classical economics had the wrong approach for dealing with depressions. Keynes argued that the economy needed expansionary fiscal policy. - higher borrowing and government spending.
2. Overcoming Market Failure.
Generally it is considered that free markets offer a better solution than a planned economy (Communist) However, free markets invariable lead to problems such as
The over production of negative externalities (e.g. pollution)The underproduction of goods withpositive externalities (e.g. education, health care, public transport).Non provision of Public Goods
An economist can suggest policies to overcome these types of market failures. For example
Tax negative externalitiesSubsidise public services like health care and education.
The importance of economics is that we can examine whether society is better off through government intervention to influence changes in the provision of certain goods.
Some Topical Issues Economists are concerned with
Carbon Tax - should we implement a carbon tax to reduce global warming.Should we tax fatty foods?Arguments for Road pricing
Efficiency
Another area where economists have a role to play is in improving efficiency. For example economists may suggest supply side policiesto improve the efficiency of an economy.
Individual Economics
Economics is also important for an individual. For example, every decision we take involves an opportunity cost - which is more valuable working overtime or having more leisure time?
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