If you search on the YouTube for Ronald Coase and Gary Becker, both renowned experts in econometrics, you find them debating on the use of certain tools to measure an individual’s level of satisfaction. In the video, Ronald Coase states that the tools used in econometrics cannot really physically measure the things that exist in the world. Then why on earth are we studying economics?
Well, even if you can’t really measure certain things in the physical world like “individual’s satisfaction”, econometrics still has its plus sides.
1. Allocation of Scarce Resources
Resources are always scarce in our present world. Be it materials, money or human, we are always in need of it. Economics solves this problem.
Econometrics has placed a scale upon resources, actions and benefits. The scarce resources we have, the actions pursued by governments and consumers, benefits generated from the use of those resources. This allows us to know which combination is ideal for the economy
2. Helping Government Devise Policies & Schemes
If you have studied economics, you would have known it as the fiscal and the monetary policies. In short, they are just policies implemented by the government to maximize output and production of their economy.
Economics help governments to decide on the right policies for the economy. In fact, it helps the government to decide on which policy to choose to produce the effect they want in their economy.
3. Understanding Behaviour of Firms & Markets
Firms uses this information for decision-making and planning. Understanding the market as well as the behaviours of their competitors enable them to decide on whether it is the right choice to enter or exit the market. These are often analyzed in the Supply & Demand model of economics.
By knowing the type of market they are in, firms can also decide on the right moves to take like setting the right price and producing the right quantity. Decisions become more complex when the government comes into play. Government can liberate firms through grants and subsidies. However, they could also impose tax on the consumers, which result in lesser demand for the firm’s goods and products.
Many models developed in economics analyzes many agendas present in our physical world. For example, the Phillips Curve helps you to understand the relationship between inflation and unemployment. The Edgeworth Box determines the conditions whereby it is beneficial for both sides to make a trade.
In conclusion, along side with its tools and methods, economics indefinitely has created convenience for many professionals and leaders out there in the world today. Without it, our economy will not have developed as far as we would imagine today.