Download What Is Economics?

Read the articles and answer following questions!
1. How do the articles define economics? What is common (in each article) and how do they
differ?
2. What is difference between microeconomics and macroeconomics?
3. What are typical economics question?
4. Why is economics sometimes called “dismal science”?
5. What is your personal definition of economics, microeconomics and macroeconomics?
What Is Economics?
Simply, and perhaps surprisingly put, economics is the study of scarcity. Resources are limited,
and every society wants to figure out how to allocate its resources for maximum benefit. The
field of economics serves in large part to help answer this resource allocation question.
Economists study topics such as:
How prices and quantities of items are determined in market economies
How much value markets create for society
How firms compete and maximize profit
How households decide what to consume, how much to save, and how much to work (or,
more generally, how people respond to incentives)
Why some economies grow faster than others
What effect monetary and fiscal policy has on economic well-being
How interest rates are determined
In order to fully understand what economics is, it’s important to also understand a bit about what
economics isn’t. For example, economics and finance are related but separate fields, and it’s not
an economist’s job to tell people what stocks and bonds they should be investing in.
It is, on the other hand, an economist’s job to understand the relationship between interest rates
and bond prices. In a similar fashion, many of the topics discussed in The Economist deal with
politics and current events and are not specifically economic-related, despite the title of the
publication.
Understanding what economists do and don’t study is important, since sometimes economists are
called on to answer questions that they are not technically qualified to analyze, and this can have
unsatisfactory results.
What is economics about:
Economics is essentially a subject that looks at choices - how individuals, governments and
businesses make them and what the consequences of making those decisions are. There is a
strong likelihood that every issue raised in the class involves some form of decision or choice for example, if fines were the answer to pollution - the choice being to pollute and get fined or
not pollute and avoid the fine - the question may then be how much of a fine is necessary before
those who choose to pollute feel the cost of doing so is too great?
The economy therefore is faced with three key questions that have to be answered - irrelevant of
the complexity of the economic system involved.
1. What goods and services should be produced? Should the economy focus on being
self-sufficient or concentrate on what it is good at? Should it devote resources to health
and education or defence and policing? Should we devote more resources to housing?
Should an economy use resources producing goods that are essentially useless - like 'free'
toys in cereal packets, football sticker cards and so on?
2. How should goods and services be produced? Should the economy use a system that is
labour intensive, thereby ensuring everyone who wants a job has one, or should we use
more efficient methods of production that involve the use of machines, even if this means
more pollution and fewer jobs? Should we devote more land to production and thus solve
some problems of feeding the population at the expense of encroaching into areas of
natural beauty?
3. Who should get the resources that the economy has produced? Should an economy be
geared to providing goods and services to every person as equally as possible or should
those who work hard get more? How do we distribute our resources?
Economics:
A social science that studies the allocation of scarce resources used to produce goods and services
that satisfy consumers' unlimited wants and needs.
Key points in the study of economics:
Social Science: Economics uses the scientific method to explain and study our
society.
Allocation: Economics studies allocation decisions about distributing resources,
goods and services.
Scarce Resources: The economy's resources are limited relative to their use.
Production: We transform available resources into goods and services. That's
production.
Consumption: The goods and services produced are used to satisfy wants and
needs. That's consumption.
An understanding of economics also involves:
Scarcity. We have limited resources, but unlimited wants and needs. The study of
economics is essentially the study of scarcity.
Opportunity Cost. Using resources for one alternative prevents using them for another.
Opportunity cost is the highest valued alternative.
Analysis. Economics is an analytical discipline that answers 'What if...?' questions.
Scarcity dictates that we must answer the three basic questions of allocation are:
What? What goods and services will be produced with society's resources?
How? How will society's resources be used to produce the goods and services?
For whom? Who receives the goods and services produced with society's
resources?
What Is Economics?
Some Answers to a Surprisingly Complex Question
What at first may appear to be a relatively simple and straightforward question is actually one economists have been
trying to define in their own terms throughout history. So it should be no surprise that there is no one universallyaccepted answer to the question: "What is economics?"
Browsing the web, you will find various answers to that very question. Even your economics textbook, the basis for
a typical high school or college course, may differ ever so slightly from another in its explanation. But each
definition shares some common principles, namely those of choice, resources, and scarcity.
The Economist's Dictionary of Economics defines economics as "the study of the production, distribution, and
consumption of wealth in human society."
Saint Michael's College answers the question, "what is economics?" with brevity: "most simply put, economics is the
study of making choices."
Indiana University answers the question with a longer, more academic approach stating that "economics is a social
science that studies human behavior...[it] has a unique method for analyzing and predicting individual behavior as
well as the effects of institutions such as firms and governments, or clubs and religions."
What Is Economics: How I Define Economics
As an economics professor and About.com economics expert, if I were asked to provide an answer to that same
question I would likely share something along the lines of the following:
"Economics is the study of how individuals and groups make decisions with limited resources as to best satisfy their
wants, needs, and desires."
From this standpoint, economics is very much the study of choices. Though many are lead to believe that
economics is driven purely by money or capital, in reality, it is much more expansive. If the study of economics is
the study of how people choose to use their resources, we must consider all of their possible resources, of which
money is but one. In practice, resources can encompass everything from time to knowledge and property to tools.
Because of this, economics helps illustrate how people interact within the market to realize their diverse goals.
Beyond defining what these resources are, we must also consider the concept of scarcity. These resources, no matter
how broad the category, are limited. This is the source of tension in the choices people and society make. Their
decisions are a result of the constant tug of war between unlimited wants and desires and limited resources.
From this basic understanding of what economics is, we can break down the study of economics into two broad
categories: microeconomics and macroeconomics.
What is Microeconomics?
In the article What is Microeconomics, we see that microeconomics deals with economic decisions made at a low or
micro level. Microeconomics looks at questions that relate to individual people or firms within the economy and
analyzing aspects of human behavior. This includes raising and answering questions like, "how does the change of a
price of good influence a family's purchasing decisions?" Or at a more individual level, how a person may ask him or
herself, "if my wages rise, will I be inclined to work more hours or less hours?"
What is Macroeconomics?
In contrast to microeconomics, macroeconomics considers similar questions but at a larger level. The study of
macroeconomics deals with the sum total of the decisions made by individuals in a society or nation such as "how
does a change in interest rates influence national savings?" It looks the way nations allocate its resources like labor,
land, and capital. More information can be found in the article, What is Macroeconomics.
Microeconomics Versus Macroeconomics
According to comedian P.J. O’Rourke, “microeconomics concerns things that economists are
specifically wrong about, while macroeconomics concerns things economists are wrong about
generally. Or to be more technical, microeconomics is about money you don’t have, and
macroeconomics is about money the government is out of.” This is probably closer to the truth
than economists would like, but let’s examine the distinction in more detail.
Microeconomics
Those who have studied Latin know that the prefix “micro-“ means “small,” so it shouldn’t be surprising
that microeconomics is the study of small economic units. The field of microeconomics is concerned with
things like:
Consumer decision making and utility maximization
Firm production and profit maximization
Individual market equilibrium
Effects of government regulation on individual markets
Externalities and other market side effects
Macroeconomics
Macroeconomics can be thought of as the “big picture” version of economics. Rather than analyzing
individual markets, macroeconomics focuses on aggregate production and consumption in an economy.
Some topics that macroeconomists study are:
The effects of general taxes such as income and sales taxes on output and prices
The causes of economic upswings and downturns
The effects of monetary and fiscal policy on economic health
How interest rates are determined
Why some economies grow faster than others
The Relationship Between Microeconomics and Macroeconomics
There is an obvious relationship between microeconomics and macroeconomics in that aggregate
production and consumption levels are the result of choices made by individual households and firms, and
some macroeconomic models explicitly make this connection.
Most of the economic topics covered on television and in newspapers are of the macroeconomic
variety, but it’s important to remember that economics is about more than just trying to figure out
when the economy is going to improve and what the Fed is doing with interest rates.
Economics as the "Dismal Science?"
you've ever studied economics, you've probably heard at some point that economics is referred to
as the "dismal science." Granted, economists aren't always the most upbeat bunch of people, but
is that really why the phrase came about?
As it turns out, the phrase has been around since the mid-19th century, and it was coined by
historian Thomas Carlyle. At the time, the skills required for writing poetry were referred to as
the "gay science," so Carlyle decided to call economics the "dismal science" as a clever turn of
phrase.
The popular belief is that Carlyle started using the phrase in response to the "dismal" prediction
of 19th-century reverend and scholar Thomas Malthus, who forecasted that the rate of growth in
the food supply as compared to the rate of the growth in population would result in mass
starvation. (Luckily for us, Malthus' assumptions regarding technological progress were overly,
well, dismal, and such mass starvation never transpired.)
While Carlyle did use the word dismal in reference to Malthus' findings, he didn't use the phrase
"dismal science" until his 1849 work Occasional Discourse on the Negro Question. In this piece,
Carlyle argued that reintroducing (or continuing) slavery would be morally superior to relying on
the market forces of supply and demand, and he labeled the profession of economists who
disagreed with him, most notably John Stuart Mill, as the "dismal science," since Carlyle
believed that the emancipation of slaves would leave them worse off. (This prediction has also
turned out to be incorrect, of course.)