The Economic Naturalist Report

Running head: THE ECONOMIC NATURALIST REPORT 1

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THE ECONOMIC NATURALIST REPORT 2

Abstract

Economic courses are essential for people or students aspiring to engage in business activities.

After completing a business course, various students cannot answer simple economic questions

just like other students who did not attend any economic course. The problem for not answering

such questions can be based on the principles courses that teach students far from the basic

economic principles. Basic principles are essential in lifting the concept of economics. When

tutors focus on the economic principles by teaching their students, students will master the

economic principles, thus contributing to the understanding of the basic economic principles that

are essential for improving any business (Frank, 2003). Robert H. Frank, the author of The

Economic Naturalist, posed interesting questions concerning something students have

individually seen and use vital economic principles in answering the questions.

Keywords

Economic principles, economic naturalist, critical thinking, economics, microeconomic, demand

and supply, utility

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Introduction

The Economic Naturalist is a book written by Robert H. Frank. Frank’s book involves a

collection of economic narratives incorporated with economic principles to clarify daily enigmas.

The book plays an essential role in solving various economic questions that have become

difficult for the students in understanding economic courses. Frank advice students to answer

economic questions by viewing the intellectual hypotheses appropriate for further testing and

refinement (Frank, 2005). When students read and understand the book, they will be on a safe

side of deciding the profitable decision while buying or selling items from different business

operators. The paper discusses economic principles that can lead to proper decision-making,

especially by students who find it difficult in understanding the basic economic principles.

Various examples have been incorporated in the paper for the better understanding of the

economic principles.

Question 1

I have learned various economic lessons from Frank’s book. The following are five key

lessons I learned from the book basing the economic concepts from the Colander’s textbook and

Mr. DVD’s lecture. To start with, I learned that economics assumes that behavior of a human

being depicts “rational self-interest.” Most of the people pursue and look for opportunities so as

to escalate their utility because they weigh costs and benefits of going for an alternative decision.

Secondly, I have learned that understanding economics is essential in business. For example,

Frank asserts that many students emerge from the introductory economics courses without

grasping any essential basic concepts such as the cost-benefit principle, the scarcity principle, the

equilibrium principle, the efficiency principle, the principle of increasing the opportunity cost,

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and the principle the comparative advantage (Colander et al. 1993). Such principles are essential

only when understood by people (Frank, 2006). Thirdly, I have learned that the law of supply

and demand plays an essential role in determining the equilibrium price. In economics, the law

of demand and supply diagram is perhaps the essential tool for the analysis of different goods.

Also, I learned that a small number of the basic principles play essential roles in lifting

economics. Therefore, instructors are required to narrow-down on the basic economic principles

so as students can understand the economic concepts. Instructors are required to sort out good

economic concepts that will help students in comprehending different economic concepts

(Colander, 1996). Lastly, I have learned from Frank’s book that critical thinking helps in

understanding on what to choose or not to choose while buying an item. For example, Frank

asserts that many students will go for a cheaper item from a downtown store than going for a

slightly expensive item from the nearby store. Such students need to develop a critical thinking

behavior that will help them understand that going to a product from a downtown store will lead

to an extra cost since there will be an additional cost for traveling.

Question 2

There are various reasons that explain why Frank calls “The Cost-Benefit-Principle” as

“the Mother of all economic ideas.” To start with, “the Cost-Benefit Principle” states that “we

are required to take an action if, and only if, the extra benefit from taking the action is greater

than the extra cost” (Frank, 2005). Frank argues that “if there is one thing that becomes clear

from the various ways in which the cost-benefit principle is used as an explanatory principle, it is

its flexibility and generality” (Vromen, 2009). Let us consider the two scenarios so that we can

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understand the reasons why Frank calls “The Cost-Benefit-Principle” as “the Mother of all

economic ideas.”

1. A person can purchase a computer game for about $25 at the nearing store or decide to

purchase the same computer game for $15 from a downtown store. Based on the scenario,

where would the buyer buy the computer game?

Although there can be no correct answer, various students will suggest stopping at the

downtown store to purchase the computer game for $15 just to save $10.

2. Would the buyer make a trip downtown to purchase a computer game for $15 so as to

save $10 on the $2020 laptop computer?

In the second scenario, there is no uniquely correct answer. In the depicted scenario, most

students would prefer to spend a large amount of money and purchase the computer game from a

store next to their door. Most students will ask themselves why to make a trip downtown when

the percentage of saving is small? The two scenarios best explain why Frank calls “The Cost-

Benefit-Principle” as “the Mother of all economic ideas.” The two questions propose a good

approach in introducing the cost-benefit principle and its relation with the mother of all the

economic ideas because most students would answer the two scenarios in a way that would

violate the economic principle. Based on the example from the of scenarios, the principle would

state that “the purchase should be made from the downtown store only if the amount of money to

be saved exceeds the cost of the trip” (Frank, 2005).

Based on the scenarios, Frank asserts that there is no unique correct or wrong answer

because each student has to weigh the essentiality of costs and benefits. When people are asked

what they would do in each of the scenario, most of the students will say that they will purchase

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the product from the downtown store. Most people will purchase the product from the downtown

store because they do not understand the cost that will be involved in accessing the downtown

store. Frank argues that understanding the principle is essential for the students since the

principle is a mother of all economic ideas that will direct an individual to choose the best

decision. The principle is regarded as the mother of all economic ideas because once the students

understand the economic ideas, they will understand that the benefit of each scenario is same

since walking downtown will involve a cost that can be the same with the amount of money

saved when buying the product from the nearest store.

Question 3

Laws of demand and supply play an essential role in economics in determining the

equilibrium prices of various commodities. Supply is an economic term that basically means the

amount of products available. On the other hand, demand is an economic term that basically

means the amount of products people would need. When the two are incorporated together, a

basic law called supply and demand will be evident. The law explains the relationship between

the quantity of products available and the quantities of products demanded. The law is essential

in discussing various economic situation or enigma one can encounter in real life. The situation

below is my experience in an economic situation or enigma I encountered in my real life. The

economic situation or enigma is based on the law of supply and demand.

The traditional microeconomic perspective is that the price of a product is determined by

demand and supply. For instance, the traditional perspective is that the price of an apple can be

identified by the demand and supply of apples. However, I experienced a challenging economic

situation that got me undecided. The experienced is based on the demand and supply, especially

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in the barter economy. I understand that apples and bananas are two different products that

cannot be compared. However, I found barter trade comparing bananas and apples. In a barter

economy, I got that banana can be exchanged for a single apple. Does the price of barter trade

involving the ratio of apples and bananas depends upon supply and demand for bananas or

demand and supply for the apples? In this experience, I found myself in a hard situation of

answering the question. The situation was hard to solve, but I assumed that the answer is both. I

based my answer on the law of supply and demand through the application of “money price”

determination. My answer was based on the realization that money-based transaction can be used

in exchange with one good. The good can be regarded as a primary good and money be regarded

as the measurement of the good. Therefore, I got that the price of the crucial good is the utility of

both supply and demand for the same crucial good and demand for the measurement of the good.

Through demand and supply, I understood that each price is the function of two sets of

demand and supply. For example, it was difficult for me to understand that a single apple can be

traded with two or more than two bananas. However, the law of demand and supply sharpened

my economic knowledge suggesting that demand for apples can be higher compared to the

demand for bananas, thus one exchanging a single apple with two or more bananas. The vice

versa is true. The supply of apples can be higher compared to the supply of bananas, thus, one

irrationally exchanging bananas with apples, and this is explained by the law of demand and

supply that can be illustrated by plotting the graph of demand and supply for the goods being

exchanged independently.

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The two graphs best explain the relationship between two different products such as bananas and

apples. For example, supply and demand for good “A” determines the current market value of

the same good. Also, the supply and demand for money determine the current market value of

the money.

Question 4

I recommend Frank’s book because it not only motivates my interests to study economics

but also helps me to become an economic naturalist. For example, Frank’s book motivate me to

go for an opportunity cost when the economic principles are not getting through. Frank suggests

that many students find it difficult to understand the basic economic principles. Frank advises

that if we find it difficult to understand the basic economic concepts, the opportunity cost will

help us in engaging in a different economic activity. Studying economics will help in

understanding the profitable alternative (Frank, 2005). For example, when we look at our

previous example of buying a computer game from either a nearby store or a downtown store,

we will find that understanding basic knowledge of economics will solve some problems.

Students will prefer going downtown to buy the computer game than buying the computer game

from the nearby store. For a person who has read the book, he will understand the cost of buying

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the computer game from the nearby store and buying the same commodity downtown is same.

The cost is same because making a trip downtown will need a cost that may be same as the

money saved while buying the same commodity from the nearby store. Therefore, Frank book

will help me in becoming an economic naturalist by understanding the key concepts of

economics, and applying the knowledge in making economic decisions.

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References

Colander, D. C., Trieff, R., & Shlaes, B. (1993). Study guide for use with Microeconomics.

Homewood, IL: Irwin.

Colander, D. (1996). Beyond Microfoundations Post Walrasian Economics. Cambridge:

Cambridge University Press.

Frank, R. H., & Bernanke. S. (2003). Principles of economics. 2nd ed. New York: McGraw-

Hill.

Frank R. H. (2005). The Economic Naturalist: In Search of Explanations for Everyday Enigmas.

New York: McGraw-Hill.

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