Preparing Kids for Success
A well-educated population is essential to the success of any society. Education broadens the mind and opens opportunities. Studying subjects such as math, English, science and the arts helps us understand the world around us and how it works. Building a stronger understanding of economic principles similarly helps youth understand the world around them and prepares them for success.
The Basic Principles of Economics
It’s essential for youth to understand a few fundamental principles about the economy as a foundation for further economic understanding. These principles include:
Scarcity. The most basic principle of economics is that the world has limited resources. However, humans have theoretically limitless wants. This forces people to make choices about the value they place on competing resources.
Utility is the value of consuming a good or service. It describes the satisfaction someone gets from having or using something of value.
Incentives. In economics, incentives motivate people to act in a certain way. Disincentives discourage behaviors. A common form of incentive is money.
Trade. Different people have access to different goods. Trade is a way for people to access those goods.
Markets provide a means to exchange goods and services. They bring buyers and sellers together, either directly or through third-party brokers.
Efficiency. If markets are operating efficiently, they are allocating goods and services in the best way possible, while minimizing waste.
How Economics Impacts Us
Once kids understand basic economic principles, they can learn how people interact and how markets operate. Everyone wants to maximize their utility, or satisfaction, of a good or service. However, too much of a good thing can become bad (or at least less good).
Imagine being hungry at the beginning of the day and going to a bakery. On the shelves are dozens of doughnuts. The first doughnut is very tasty and satisfying. Consuming it will increase economic utility. The second doughnut will also be satisfying but likely less than the first one. Consuming more doughnuts will bring greater overall satisfaction, but each successive doughnut will bring less satisfaction than the last one. Eventually, the consumption of an additional doughnut will lead to dissatisfaction by being full or feeling sick. This circumstance describes what economists call the law of diminishing marginal utility.
To maximize overall utility, people want to acquire different goods and services. They do this by trading what they have in abundance for things that they don’t have. They do this through markets. The bakery is an example of a market where people trade money for doughnuts. The baker can then use the money to buy other goods or services in other markets.
When individual markets are combined, they can become large markets. The size of a market is determined by the number of buyers and sellers who participate in the exchange. While many markets are physical, there are also virtual markets. Traditionally, the New York Stock Exchange was a physical market where stocks of companies were traded, while the Nasdaq Stock Market is a virtual market doing the same thing. Amazon.com is another example of a virtual market that performs many of the same functions of other physical markets.
Teaching Economics Can Help Kids Understand the World
There are many examples of economic interactions all around us. Helping youth understand them can not only illustrate how markets work but how people act and what motivates them.