Running Head: ECONOMIC THINKING PAPER

Economics Thinking Paper

Vu Hue

ID: 830132204

City University of Seattle

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ECONOMIC THINKING PAPER

Economists or everyone else have very different views and ideas (Tucker, 2014). One news

commentator once remarked that "any half of economists would normally come up with about

six different policy rules. " (Nash, 2019). However, there is a difference in philosophy and the

approach of the economists still has in common that is economic theory, developed from the

basic principles of human behavior (Daniel, 2011). Economic researchers are constantly

studying, testing, and verifying their theories. When the evidence from the test matches a theory,

the theory will be widely accepted by economists. Economic theory shows what to look for and

how economic problems are closely related (Daniel, 2011).

The study of scarcity and choice

Economic studies the human ‘choices with regard to scarce resources. If there is anything like

foundation in economics, it belongs to these two concepts: scarcity and choice (Rittenberg &

Tregarthen, 2009). Scarcity is the fact that our wants exceed what our resources can produce, it

means that we forced to make choices about the best way to use these limited resources (Tucker,

2014). In a world of scarcity, whenever we select one option, we also select to do without

anything else that we also desire and the want that we select not to satisfy is the opportunity cost

of that choice (Rittenberg & Tregarthen, 2009).

The economic way of thinking

Besides, economic way of thinking considers how people choose under the scarce conditions and

the systems of production (Rittenberg & Tregarthen, 2009).  It also examines the effects of

policies and action of government on market ‘outcomes. The economic way of thinking provides

a decision-making framework for individuals, firms and policy-makers. The economic way of

thinking with 5 core ideas: rational selections, cost (what we must give up), benefit (gain

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measured by what we are willing to give up), selecting at the margin, responding to incentives

(Nash, 2019). The incentive could be a reward or a penalty – a “carrot” or a “stick” – that

encourages or discourages an action (Rittenberg & Tregarthen, 2009). When we create

selections, we reply to incentives. A change in MB (margin benefit) or a change in MC (margin

cost) changes the incentives we face and leads us to change our choice (Tucker, 2014). 

Methods are used for problem identification

Moreover, economists carry a set of theory in their mind like a carpenter carrying a set of tools

(Daniel,2011), When they see an economic problem or any problem, they look at the theories

they know to see if they can find a suitable theory. Then, they use theory to draw insights into

those problems. Economists express theory in terms of graphs, diagrams, or even mathematical

equations. Economist do not find the answer to the problem first and then draw graphs to

illustrate them. Besides, they use graphs of theory to help them find answer (Nash,2019).

Model development in economics

In addition, developing a model need to base on simplified assumptions. It is a simplified

description of reality that is applying for predicting, analyzing, and perceiving the relationship

between variables (Tucker, 2014). The model is very important to emphasize and explain those

variables and event. Besides, the assumptions for the model is helpful and simplified for the

model which is crucial. The main purpose of the model is to build abstraction from real-world

complexities and make events be able to perceive. There are two basic economic models consist

of The Circular Flow Diagram, The Production Frontier (Daniel, 2011).

Economist test the theories

Also, an economic model will embody in numerical table graph, a verbal argument or

equation which gives a diversity understanding for formulating the concept of basic economic
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principles. An economic model theory may be expressed within the type “If A, B are different

things keep constant” (Tucker, 2014). A helpful economic model when it yields correct

predictions. When the proof is suitable for the theory that A causes outcome B, the theory is

valid. On the other hand, If the proof is not out of the theory that A causes outcome B, the

scientist rejects this theory. After that, the economists collect information to check. The

economists use theory based on oblivious assumption related to human behavior to analyze

issues.  It seems a good theory when it is easy enough to understand, while it is also complicated

enough to apprehend the key elements of the objects or any situations being studied” (Nash

2019).

Why do economists disagree?

However, most economists disagree more than others from the report which shows that

disagreements are always greater than agreements (Tucker, 2014). The given reasons economists

disagree are the value of alternative positive theories of how the world operate. Furthermore,

theories have different values, the normative views also differ in what the policy attempts to

implement (Nash,2021)

Conclusion

Developing economic thinking in order to separate correct logic of economic nonsense,

economics will be relatively easy. Using economic thinking can also be very interesting.

Furthermore, it will provide valuable insight into how people's actions can be gathered for the

benefit of the general community to answer questions such as what motivates people, why they

act the way they do and why their actions sometimes go against the best interests of the

community or nation (Daniel, 2011).

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References

Daniel, K. (2011). The Economic Way of Thinking.

Nash, R. (2019). The Economics Way Thinking, part 1. Retrieved from Foundation for Economic

Education: https://fee.org/articles/the-economic-way-of-thinking-part-1/

Rittenberg, L., & Tregarthen, T. (2009). Microeconomics Principle.

Tucker, I. (2014). Economics for today. University of North Carolina Charlotte.