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January 20, 2018 

AmosWEB means Economics with a Touch of Whimsy!

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YIELD: The rate of return on a financial asset. In some simple cases, the yield on a financial asset, like commercial paper, corporate bond, or government security, is the asset's interest rate. However, as a more general rule, the yield includes both the interest earned from an asset plus any changes in the asset's price. Suppose, for example, that a $100,000 bond has a 10 percent interest rate, such that the holder receives $10,000 interest per year. If the price of the bond increases over the course of the year from $100,000 to $105,000, then the bond's yield is greater than 10 percent. It includes the $10,000 interest plus the $5,000 bump in the price, giving a yield of 15 percent. Because bonds and similar financial assets often have fixed interest payments, their prices and subsequently yields move up and down as economic conditions change.

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ECONOMIC THINKING:

A way of looking at and analyzing the way the world works by comparing the cost of an action with the benefit generated. The study of economics is the process of economic thinking about issues related to the scarcity problem.
The need for economic thinking is a direct result of the scarcity problem, which exists due to unlimited wants and needs, but limited resources. Scarcity means that virtually all actions incur an opportunity cost. Identifying the cost of an action, no matter how hidden or subtle it may be, is the essence of economic thinking.

Cost and Benefit

Suppose, for example, that Alicia Hyfield, an average everyday run-of-the-mill college student, is contemplating the purchase of a new computer. Economic thinking suggests that a comparison between the cost of the computer and the benefit derived from using it are in order.

The cost includes out of pocket expenses (purchase price, taxes, shipping charges) as well as Alicia's time and effort (driving to the store, setting up the computer, learning the programs). The benefit includes improved grades, a better education, and even the enjoyment of playing video games. Economic thinking poses the question: Does the benefit of the purchase justify the cost? If Alicia makes the purchase, economic thinking implies she has decided that the benefit exceeds the cost.

An Economic World

The study of economics is essentially the process of economic thinking about assorted economic phenomena, such as production, consumption, market exchanges, and a host of other topics too numerous to list here. However, closer inspection reveals that most aspects of human existence, many that might not seem like economic phenomena, can also be subject to economic thinking.

Suppose, for example, that Alicia Hyfield is also contemplating the upcoming Shady Valley Mayoral election. Should she vote for the incumbent Mayor Victor Thurgood or the challenger Roland Nottingham? Economic thinking results when Alicia evaluates the cost and benefit of voting for each candidate.

  • Mayor Thurgood has proposed constructing a new park with a jogging track. Alicia likes to jog.

  • Roland Nottingham has suggested that a new tax on left-handed people would raised needed revenue. Alicia is left-handed.

  • But Mayor Thurgood also wants to reduce environmental regulations. Alicia has asthma and suffers when air pollution is high.

  • Then again Roland Nottingham is a strong advocate of education and an alumnus of the Ambling Institute of Technology. Alicia is a student at the Ambling Institute of Technology.
Voting, crime, marriage, studying, and a number of other human activities, can also be subject to economic theory. What is the anticipated cost and benefit of robbing a convenience store? What is the anticipated cost and benefit of proposing marriage? What is the anticipated cost and benefit of preparing for an upcoming exam?

Virtually every decision made by a human being results in cost and benefit, and is thus subject to economic thinking. In fact, most people engage in such economic thinking even without formal economic training.

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Recommended Citation:

ECONOMIC THINKING, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 20, 2018].


Check Out These Related Terms...

     | economic analysis | positive economics | normative economics | dismal science | incentive | opportunity cost |


Or For A Little Background...

     | scarcity | economics | economy | seven economic rules | three questions of allocation | efficiency |


And For Further Study...

     | consumer sovereignty | mixed economy | economic goals | mixed economy | macroeconomics | microeconomics | political views | four estates | production possibilities | circular flow | business cycles | short-run production analysis |


Related Websites (Will Open in New Window)...

     | American Economic Association |


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