Economics and Politics

Economics is the study of the distribution of resources, and the production and use of goods and services. Macroeconomics looks at the total number of goods or services that are made and consumed in the U.S. Microeconomics looks at each person and the individual decisions they make to buy or use goods and services.

Economics uses principles and theories to examine how resources are used. In each society there are a limited amount of resources, like labor (people who work), water, land and air.


Scarce Resources

Because resources are scarce (very limited) they command a price. A price is an exchange for a good or service. In our society, money is most often used to exchange for goods and services. Since there are limits to the amount of work we can do and the amount of natural resources we have, we as a society must examine how these resources are used. Do we want to use resources to hurt people? When our limited labor force spends its time making and selling cigarettes, it’s important to ask yourself, "Is this the way I want our limited resources to be used?" When you use drugs you are a part of the economy of "dealing" drugs.

Labor is a scarce resource, so the fewer people who will do a certain job, the more they should get paid. For example, when people do something dangerous, they should be paid more. Recent studies have shown that people working around secondhand smoke (like waitresses and bartenders) get higher rates of cancer than people who work in clean air. Should society protect labor from the poisonous gases in the workplace? Recently, the State of California decided that smoke should not be allowed in bars or restaurants in order to protect workers from secondhand smoke. It is important to protect resources like labor.

Supply and Demand

There is a difference between a need and a want. A need is something that you must have to live. A want is something that you desire. The word "demand" in economics refers to something that you both want and are able to buy. So "demand" depends on how much a good or service costs to make, how much you can afford to spend and how willing you are to buy it.

A demand curve is shown at right. The quantity demanded increases as price increases.

Tobacco companies fight the government from putting taxes on cigarettes because the higher cigarette prices are, the fewer people can buy them. Tobacco companies also fight regulations like limitations on where cigarettes can be smoked. The fewer the places that allow smoking, the less the demand will be for cigarettes and the less money tobacco companies will make.

A supply of a product is the amount the producer is willing or able to give at a particular time. A supply curve is shown at left. As you can see, the more money a grower can make from a specific crop, the more of that crop they will grow.

For many years tobacco companies have made sure that tobacco farmers have received millions of dollars in price supports (extra money from the government) for growing tobacco. This comes from the tax money paid by U.S. citizens. Price supports make sure that farmers will use their limited supply of land to grow tobacco, instead of growing something else, like food to eat or cotton for clothes. Because tobacco farmers get money from the government, they can afford to sell their tobacco to the tobacco companies for a lower price.

When a supply curve and demand curve are examined together, they look like this:



Where the curves intersect shows at what price the product should be sold at and how much (quantity) of it should be produced.

It is important to understand the economics of tobacco. The companies want to keep the price low so that more consumers will buy it and become addicted. This means the companies will fight any attempt by the government to tax cigarettes, even though cigarettes cost taxpayers billions of dollars each year in health care.

The tobacco companies will fight to make sure farmers are given tax money in price supports. This will make sure that farmers will want to grow tobacco. It will also keep tobacco at a low price for both cigarette manufacturers and
cigarette consumers.


You Play Economist:

A group of students’ mothers are outside protesting at a local store because they are illegally selling cigarettes to teenagers. Many customers are not coming in the store and the store owner is upset. What do you think will happen to cigarette sales? Why?

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