What is Economics?

Economics Definition

The branch of economics studies how the limited amount of resources is distributed amongst the population of societies, cities, regions nations and the globe. From household goods, services provided in a market or stockroom, food and clothing, vacation packages and luxuries, diamonds and gold, labor and employment and even the very action of getting out of bed each morning, economics is the study of how these goods and services flow throughout markets.

 

A market is a place where these goods and services are exchanged. In early market places, bartering was the means of exchange. This is where two individuals would trade goods or services directly. If a farmer needed a bag of hay he could give another farmer a bag of horse shoes in exchange. While convenient for small exchanges, this method of exchange proved cumbersome for larger exchanges.

What is Economics

 

As a substitute for bartering, money as a medium of exchange was established. Assigned set values, coins and bills were easier to carry and transport, it could be exchanged for goods of equal value and they held their value making transactions easier and cheaper.

 

Regardless of how an exchange of goods and services is done, they only occur because both individuals are getting something they desire at a lower cost than what they are giving up. A fundamental assumption of economics is that all actions have benefits that outweigh their costs, or B > C. After all, why would a person give $100 for a gumball if it only provides them with near $0.30 of value, or why would a salesman sell a car for $5 when it cost them $10,000 to receive it into their inventory? Logically and in practice this does not happen. Even in the event of sales, the idea is that the company will attract customers in which will lead to additional items being sold. Therefore benefits are greater than the costs.

 

This concept applies to everything from the purchase of goods and services in a market, to setting wages for employment and even to whether you should wake up at 7:00 A.m. or 11:00 A.M. When you decide to sleep extra hours or not, you are weighing the outcomes and the benefits and costs.

 

 

 

Costs are not always monetary costs either. For example: If you have a test in the morning, but a friend invites you out for a night of fun, there is more than the cost of spending money. If you choose to go out, you give up the study time, the results of a higher grade and the pressure of having to do better on your next test. if you choose to study instead, you give up the cost of what enjoyment you would have gained. These costs are called opportunity costs, and must be considered in all economic decisions.

 

The two main branches of the study is macroeconomics and micro economics or macro micro economics. Microeconomics is the branch that deals with the decision making of individuals and firms. Common topics covered is how to calculate demand and supply functions. Setting these equations equal to one another brings allows the equilibrium level, or where supply equals demand to be calculated. It is when equilibrium is obtained that producer surplus + consumer surplus is greatest and therefore total utility or welfare is highest. The same can be used to to calculate profit maximizing firm quantities and prices. In addition to calculating the profit maximizing firm prices, thedemand elasticity formula can be used to determine the effect of prices on quantity demand. On the macroeconomics side, the economy as a whole is studied. Common topics of this nature include GDP, using the demand elasticity formula to calculate the effect of currency and prices, inflation, the CPI, and even regional and urban economics.

 

The study of economics requires a knowledge or background in calculus and statistics, with econometrics becoming a large topic in the field. Using regression analysis and typically computer software, models are derived to show relations between variables, forecasts are made for future predictions and hypotheses can be tested. The entire study of economics is based around the neoclassical mathematical model. All calculations come from deriving functions and solving for variables. There is a common misconception that economics is a debatable topic, when in reality it is purely mathematical and not open for debate. 2+2 always = 4 regardless of one’s opinions or political affiliation.

economics definition

Fields in economics include:

Micro macro economics

Urban economics

Regional Economics

Econometrics

Labor Economics

Industrial Economics

Trade Economics

Monetary Policy Economics

Banking Economics

Game Theory and Strategic Decision Making

Normative Economics

Positive Economics