As a new flock of first-year Canadian university students settles into life on campus, many are receiving their first serious exposure to the study of economics.
Some will find it exhilarating. Some will find it intimidating. All, if they pay attention, will learn valuable lessons that will serve them well not only in their education, but throughout their lives.
I’ve had this on my mind over the past couple of weeks as I recently helped my own son move into university residence and prepare for his first taste of postsecondary education, including an introductory microeconomics course. I started thinking about the importance of understanding how economics works in our day-to-day world, and in particular, its significance to new adults dealing with economic realities of living on their own for the first time.
Which prompted me to call two prominent experts in the subject: Christopher Ragan of McGill University and Michael Parkin of Western University.
There’s a good chance that if you’re enrolled in a first-year microeconomics course, you have just cracked open (physically or electronically) a textbook written by either Dr. Ragan or Dr. Parkin. They are the authors of two of the bestselling introductory microeconomics texts in the country. For decades, universities from coast to coast have relied on them to help teach students what economics is and how it works.
I contacted the two scholars to talk about what young adults need to learn about economics that many of them misunderstand coming in, and to identify the most important tools that a course in the field can add to one’s intellectual toolbox.
We were specifically discussing first-year university students. But we could just as well have been discussing the value of learning more about economics for anyone, at any age, in any occupation.
“I just think that a basic knowledge of economics takes you an enormous way,” Dr. Ragan said.
“Most students arrive in a first-year economics class at university knowing, basically, nothing,” he added. “They will have come across concepts. But what they will not have is any sort of organized way to slot this information together. … A key part of what economics are doing is providing a framework to organize your thinking.”
One key point that both professors pointed out – a fundamental misunderstanding – is that economics is all about money. It’s not – it’s rather about scarcity and the decisions made to allocate limited resources.
“I think the key thing that young people entering university need to understand about economics is that it’s the science of choice, and has much to say about their choices,” Dr. Parkin said.
He uses a student’s daily schedule – classes, studying, eating, exercising, socializing, part-time job, sleep – as an excellent example. It involves making decisions about how to distribute a valuable and limited resource. Allocating more time for one activity must necessarily take away time for others. There’s no money involved. But that’s what all economics, at its root, is talking about.
“Economics lesson No. 1 explains that every choice has a cost – an opportunity cost – the best alternative forgone,” he said.
“Use this fact and try to make good choices.”
Both authors list several basic concepts that form the building blocks of any economic education. Opportunity cost is one of them. There’s also supply and demand. No one will get far without understanding how these two fundamental forces work to set prices in the marketplace, and influence behaviours and choices of market players. The concept of comparative advantage is also vital to understanding how any marketplace works – especially the global one.
“These are the most important tools of economic knowledge that everyone should have in their toolbox,” Dr. Parkin said.
The authors both noted that many Canadians – whether they’re new students of economics or not – have a flawed understanding of how many common economic forces work. People have trouble wrapping their heads around interest rates. They are misguided about the forces that raise and reduce inflation. They are confused about the distinction between fiscal policy (government taxation and spending) and monetary policy (money creation).
“There are lots of myths and mysteries that you need to clear up,” Dr. Ragan said.
But both scholars agree that if students walk away with nothing else from their first-year economics course, an understanding and appreciation about scarcity and choices will serve them well.
And for some, this foundation of economics can lead down some fascinating roads. Dr. Ragan argues that the next level of understanding – exploring the consequences of those choices, and how they affect other economic players and lead to further choices and consequences, including unintended ones – is where the study of economics gets very interesting. This, he says, is where some first-year students get hooked on economics.
“You start to connect these different markets, where students hadn’t really thought about how these markets connect before,” he said.
“That’s where things get really cool.”
The Globe and Mail, September 14, 2023