Economics: The Study of Choice

Read this chapter to learn about the economic way of thinking and the principles of scarcity and opportunity cost. Be sure to click through each of the sections. Note how individuals and businesses make everyday decisions at the margin. Learn about the differences between macroeconomics and microeconomics.

1.2 The Field of Economics

Putting Economics to Work

Economics is one way of looking at the world. Because the economic way of thinking has proven quite useful, training in economics can be put to work in a wide range of fields. One, of course, is in work as an economist. Undergraduate work in economics can be applied to other careers as well.

Careers in Economics

Economists generally work in three types of organizations: government agencies, business firms, and colleges and universities.

Economists working for business firms and government agencies sometimes forecast economic activity to assist their employers in planning. They also apply economic analysis to the activities of the firms or agencies for which they work or consult. Economists employed at colleges and universities teach and conduct research.

Look at the website of your college or university's economics department. Chances are the department will discuss the wide variety of occupations that their economics majors enter. Unlike engineering and accounting majors, economics and other social science majors tend to be distributed over a broad range of occupations.

Applying Economics to Other Fields

Suppose that you are considering something other than a career in economics. Would choosing to study economics help you?

The evidence suggests it may. Suppose, for example, that you are considering law school. The study of law requires keen analytical skills; studying economics sharpens such skills. Economists have traditionally argued that undergraduate work in economics serves as excellent preparation for law school. Economist Michael Nieswiadomy of the University of North Texas collected data on Law School Admittance Test (LSAT) scores for the 12 undergraduate majors listed most often by students hoping to enter law school in the class of 2008–9. Table 1.1 "LSAT Scores for Students Taking the Exam in 2008" gives the scores, as well as the ranking for each of these majors in 2008. Economics majors tied philosophy majors for the highest average score.

Table 1.1 LSAT Scores for Students Taking the Exam in 2008

Rank Major Average LSAT Score # of Students
1 Economics 157.4 3,047
1 Philosophy 157.4 2,184
3 Engineering 156.2 2,197
4 History 155.9 4,166
5 English 154.7 5,120
6 Finance 153.4 2,267
7 Political science 153.0 14,964
8 Psychology 152.5 4,355
9 Sociology 150.7 1,902
10 Communications 150.5 2,230
11 Business administration 149.1 1,971
12 Criminal justice 145.5 3,306

Here are the average LSAT scores and rankings for the 12 undergraduate majors with more than 1,900 students taking the test to enter law school in the 2008–2009 academic year.

Did the strong performance by economics and philosophy majors mean that training in those fields sharpens analytical skills tested in the LSAT, or that students with good analytical skills are more likely to major in them? Both were probably at work. Economics and philosophy clearly attract students with good analytical skills - and studying economics or philosophy helps to develop those skills.

Of course, you may not be interested in going to law school. One consideration relevant to selecting a major is potential earnings in that field. The National Association of Colleges and Employers conducts a quarterly survey of salary offers received by college graduates with various majors. The results for the summer 2011 survey for selected majors are given in Table 1.2 "Average Yearly Salary Offers, Summer 2011". If you are going for the big bucks, the best strategy is to major in petroleum engineering. But as the table suggests, economics majors as a group did quite well in 2011.

Table 1.2 Average Yearly Salary Offers, Summer 2011

Major Average Offer
Petroleum engineering $80,849
Chemical engineering 65,617
Computer engineering 64,499
Computer science 63,402
Electrical engineering 61,021
Engineering 60,465
Mechanical engineering 60,345
Information science 57,499
Economics 53,906
Finance 52,351
Accounting 49,671
Business administration 44,825
History 40,051
English 39,611
Psychology 34,000

One's choice of a major is not likely to be based solely on considerations of potential earnings or the prospect of landing a spot in law school. You will also consider your interests and abilities in making a decision about whether to pursue further study in economics. And, of course, you will consider the expected benefits of alternative courses of study. What is your opportunity cost of pursuing a study of economics? Does studying more economics serve your interests and will doing so maximize your satisfaction level? These considerations may be on your mind as you begin to study economics at the college level and obviously students will make many different choices. But, should you decide to pursue a major in economics, you should know that a background in this field is likely to serve you well.