The study of the allocation of scarce resources among competing ends (desires and needs).
We live in a world with scarce resources. Limited resources means that we can only have access to or produce so much of any one good or service in particular. It also means for example, that if we use our resources to build cars, we might not have enought left over to build boats, planes, or trains. Thats where the limited resources part of economics shows up. The other half of the economics pie focuses our attention on the unlimited wants part. Which considers all the things people dream of while enjoying a good nights sleep. Let's say for example that yesterdeay we chose to use our limited resources to make cars. Now today, we decide we also want not only a car but also a boat too. In other words, we still want everything our eyes see, everything we dreamed about last night, even though we know we can't afford them all. Economics studies these factors and their interactions.
At its most basic, economics is the study of what to produce, for whom to produce, and how to produce something (a commodity). Although this statement is very simple, its implications are very far reaching. For example, a typical introductory text to the subject of economics will usually touch on issues from why a price of a house is what it is to why some people are poorer then others.
Since economics puts human behaviour under a microscope, many regard economics to be a social science. As a social science the theories and hypothesis are developed through the use of analytical methods which are commonly found in hard sciences like physics and chemistry. However because the subject matter, human behaviour, is so broad and complicated it is often thought that there is rarely a right or wrong answer for an economic problem.
Normative and Positive EconomicsEdit
One can make a clear distinction in the study if economics between arguments over mechanisms involved in the economy and arguments over whether those mechanisms should be working, if at all, in the manner they are.
Positive economics concerns itself with analysis and predictions of behaviour of the person and society and the general economy. This involves a close study of real life observations usually conducted through numerical data such as unemployment rate or price level on occasion through experiments on live subjects. Positive economists try to act as logically as possible with no ethical or moral code except for the principle of understanding how the economy really works.
Normative economics on the other hand attempts to form recommendations based on positive economics. As such normative economics is thought to be based on people’s judgements. It is impossible to say which judgement is right or wrong because all judgements and opinions are partially based on personal preferences and taste.
Micro and Macro EconomicsEdit
So economic problems and phenomena can be considered autonomous of outside factors and thus do not need to be considered in a wider context. On the other hand some economic issues are thought to be far too intertwined with outside factors and thus the whole economy must be considered in order to study this certain issues accurately. such issues might be government intervention or international trade disputes.
Therefore economics divides into microeconomics, which studies decisions made by individual people and firms independent of many other factors, and macroeconomics, in which the economy is thought of as a whole unit. Both branches often deliberately simply real life factors in order to keep analysis at a manageable level of complexity but macroeconomics is thought to simply and aggregate human behaviour to a far higher degree then microeconomics.
Although there is a clear distinction in the area of economics which is studied, theories and ideas developed in both branches are often needed to be considered together to form more accurate conclusions. For example analysing inflation can be done at an aggregate level yet to really understand why it is occurring one must consider supply and demand of key individual markets like labour and raw materials, which may include energy, and any possible restrictions of supply or major shifts of demand in these markets.
to be written
Tools of EconomicsEdit
Economics encompasses a very wide variety of methods of thinking from many disciplines such as statistics and psychiatry. However most widely used tool of economists is the basic supply and demand diagram and the neo-classical simplification of a human being in homo economicus.
- David Begg, Economics 7th edition, 2003 (ISBN 0-07-709947-8)