Economics Definition - Overview, Types of Economics, & Indicators

Introduction to Economics

In this article, we're going to discuss the concept of economics. So economics is a social science just like political science sociology anthropology. This is a little surprising to some people because a lot of people think that economics is just about money but economics is actually a science that's examining how people make choices. Similar to things like psychology and sociology where we study how individuals or groups make choices, with economics we're seeing how people make choices in the context of having unlimited wants and desires and yet having limited resources available to fulfill those wants and desires.

What I mean by that is we all want things we want better health care we want better schools we want to make more money we want to live longer we have all these wants and desires and yet there are limited means to fulfill those desires, right? So we might want for example for everybody in the world to have electricity and to be able to just flip a switch and to have lights in their home and to have heat and all those things, so the question is well do we have the resources right now available to be able to have all those all the electricity and the things and clean water and so forth for all the people in the world? You might say well yes actually there's plenty of water and there's plenty so forth but there's not an infinite amount of water, there's not an infinite amount of coal of natural gas there, might be a lot of some of those things and you might argue that there's enough that we can find a way that we could allocate this to all the different people and make everybody happy but the fact is that the resources are limited. There's a finite supply of resources and so economics is about, how do we deal with the fact that we have a finite supply of resources and how do we find ways how do we make choices to be able to satisfy people's wants and desires and that's going to involve things like trade-offs. 

So we want more electricity, for example, people in India we want everybody in India to have electricity and then somebody says "To do that we're going to need to produce some coal and then somebody else says okay well for producing that coal, what is going to happen to carbon dioxide emissions and so forth?" So we think about carbon emissions and then somebody else would say "Hey look we need to think about these people's quality of life and it's really more important that we get electricity." So we're thinking about all these things and again it's not just about money it's about people's standard of living it's about even families.

There's an entire branch of economics called family economics which is started by a guy named Gary Becker and we can think about things like how families decide how many children they have? How families decide whether they want to invest in the education of those children, do they want to educate all their children, or just pick the smartest one and that might seem immoral to you. You might think why would people make these choices they should always choose to have all the best health care they should always choose to educate every child as much as they possibly can, but again resources are finite and some people might be having a situation where they have to make difficult choices and economics is about studying how people make those decisions.

The fundamental economic problem is that we have all these wants and desires but we have finite resources to satisfy those wants and desires. So let's study how people make those choices.

Ultimately we can divide economics into two branches. It's a lot more complicated than this I mean we can think about things like behavioral economics, where we start saying what about when people don't behave rationally when they don't do something that might be in their best interest and so forth and we'll talk about that but there's really two primary branches of economics. That you'll hear about and you have individual courses in each of them you'll have microeconomics and you'll have macroeconomics.

In microeconomics, we're examining the behavior of individual economic actors and when I say into individuals it doesn't just mean a person although that's what it could and very often be the case it could also be a firm. So we could look at a corporation and see how a corporation behaves and so forth. 

When I talk about just a few people or individuals or anything about people and do about firms and so forth we could even think about societies but generally we've got these individual economic actors. Want to know, how they behave? So we might ask how do people respond to a change in price or how do people respond to a tax, for example, let's say that we increase the cigarette tax. How is that going to affect the behavior of people who smoke cigarettes? How is that going to affect the behavior of children who haven't decided to smoke cigarettes yet will they be less likely to do so and so forth. We can think about how a tax would affect individuals' behaviors. Microeconomics is looking at individuals and firms and saying how do they behave in the environment.

Well, in macroeconomics we're looking at aggregate economic indicators things like gross domestic product, which we'll talk about in another article to come but basically when we say aggregate we're thinking about the entire economy. If we think for example of the U.S. the United States, we say we're looking at the gross domestic product, that's all the goods and services produced by everyone the entire economy all of the people that are living in the United States. And we're not just thinking about any individual person or individual group of people. We're aggregating these things and looking at GDP we're looking at inflation these large-scale measures that can be measured at the country level or at the state level. We're looking at how those economic indicators change over time. How different things affect them. We're going to talk a lot more about microeconomics and macroeconomics and the different types of the exciting field of economics in the articles to come.

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