![]() There are a variety of modern definitions of economics some reflect evolving views of the subject or different views among economists. The term is derived from the Ancient Greek οἰκονομικός ( oikonomikos), "practiced in the management of a household or family" and therefore "frugal, thrifty", which in turn comes from οἰκονομία ( oikonomia) "household management" which in turn comes from οἶκος ( oikos "house") and νόμος ( nomos, "custom" or "law"). The earlier term for the discipline was ' political economy', but since the late 19th century, it has commonly been called 'economics'. It is also applied to such diverse subjects as crime, education, the family, feminism, law, philosophy, politics, religion, social institutions, war, science, and the environment. ![]() ![]() Įconomic analysis can be applied throughout society, including business, finance, cybersecurity, health care, engineering and government. Other broad distinctions within economics include those between positive economics, describing "what is", and normative economics, advocating "what ought to be" between economic theory and applied economics between rational and behavioural economics and between mainstream economics and heterodox economics. Macroeconomics analyzes the economy as a system where production, consumption, saving, and investment interact, and factors affecting it: employment of the resources of labour, capital, and land, currency inflation, economic growth, and public policies that have impact on these elements. Individual agents may include, for example, households, firms, buyers, and sellers. Microeconomics analyzes what's viewed as basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Įconomics focuses on the behaviour and interactions of economic agents and how economies work. Hiring more workers would mean extra output and revenue, but there are costs associated with adding staff as well.Economics ( / ˌ ɛ k ə ˈ n ɒ m ɪ k s, ˌ iː k ə-/) is the social science that studies the production, distribution, and consumption of goods and services. Only simple and inexpensive kitchen items are necessary for their work. This aspect of Al-Hayani's business necessitates that he hire several food prep workers to staff the central kitchen. Once prepped, the items are transported to restaurants around town. About 60% of the necessary prep work (washing, cleaning, chopping, and storing) takes place in Al-Hayani's kitchen. To explore this, consider Wail Al-Hayani, who is the owner of a central kitchen that provides fresh prepared food (excluding meats) to quick-service restaurants. In economics, the word marginal means the difference made by one extra unit of something-a key marginal value for the labor market is the value of the extra output that an additional worker would provide. In other words: What should I choose to do next? For this choice, the father of neoclassical economics, Alfred Marshall, demonstrated that it is the marginal values that matter. What matters in decisions about hiring and pay is not the past, but the future. For example, although much of the data around jobs and labor market activity is reported in averages-such as the average output per hour of all workers-these data reflect information on choices that have already been made. But what matters most about supply and demand? When it comes to hiring decisions and setting wages and salaries, it is the margins that matter. At its simplest, economics teaches us that demand in the labor market comes from firms and organizations and supply comes from individuals willing to work. One of the most important topics for managers concerns the basic choices about labor: How many people should I hire, and what should I pay them? Naturally, the answer to both questions has quite a lot to do with demand and supply, those staples of economic analysis. To maximize profits, a competitive firm should hire workers up to the point where the value of the marginal product of labor equals the wage.Ī principal objective of economic thinking is to inform key decisions made by firms and their managers. If Al-Hayani hires more workers, it would mean extra output and revenue, so long as the value of the marginal product of labor exceeds the wage. In particular, how many people should a firm hire, and how much should they be paid? The note uses the example of Wail Al-Hayani, the owner of a kitchen that provides fresh prepared food to quick-service restaurants, to explore hiring decisions and setting wages and salaries-and the marginal values that matter. This technical note explores one of the most important topics for firms and their managers: labor.
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