Economics

We live in a world of scarcity. Scarcity means that our wants exceed resources. Wants do not simply exceed resources; they are unlimited. Indeed, human wants are effectively unlimited but the resources available to satisfy them are finite. Scarcity forces people to compete with each other for scarce resources by making choices. Making the best choice possible from what is available is called optimizing. There is another word that has a similar meaning – economizing. Economiz­ing is making the best use of the resources available.

The social science that describes and analyzes how people in a society choose to use its scarce resources to satisfy their needs and wants is called economics.

Economics is a young science and a long way from having achieved its goal. Its birth can be dated fairly precisely in the 18^th century with the publication of Adam Smith’s “The Wealth of Nations.”

Once economics was called the “dismal science” since a 19^th-century economist, Thomas Malthus, predicted that population growth soon would outstrip the ability of farmers to produce food.

Economic science, like the natural sciences and the other social sciences, attempts to find a body of laws of nature. It seeks to under­stand what is and is silent about what ought to be.

Economics tries to answer difficult questions that affect our daily lives. These questions concern 1) the production and consumption of goods and services; 2) wages and earnings; 3) unemployment; 4) inflation; 5) gov­ernment spending, taxation, and regulation; 6) inter­national trade; and 7) the distribution of wealth and poverty in a country and throughout the world.

These questions, known as seven big questions provide an overview of economics. They are big questions for two reasons. First, they affect the quality of human life with great intensity. Second, they are hard questions to answer.

Understanding economics concerns everyone as an individ­ual, as an earner and spender, and as a citizen. In fact, as a member of society, you cannot escape economics. Our food, home, clothes, and even leisure time are all affected, in part, by economic forces.

The more you know about economics, the better decisions you will be able to make. In fact, one common definition of economics is “the study of how people make a living.”

Professionals who study economics and discuss this decision-making process are called economists. Many economists are university professors. They teach and research economic issues. Large corporations and banks hire economists to study markets and business methods. The government and cities also employ economists to study economic problems and trends.

For convenience, economists usually study issues facing individuals, families, and businesses separately from problems facing nations. They even have specific names for each area of study – macroeconomics and microeconomics.

Microeconomics is the branch of economics that studies the decisions of individual households and firms. Microeconom­ics also studies the way that individual markets work and the detailed way that regulation and taxes affect the allocation of labour as well as of goods and services.

Macroeconomics is the branch of eco­nomics that studies the economy as a whole. It seeks to understand the big picture rather than the detailed individual choices. In particular, it studies the determination of the overall level of economic activity – of unemployment, aggregate income, av­erage prices, and inflation.

Another important branch of economics is international economics, which has three main subdisciplines: international trade, monetary economics and international finance.

Economic phenomena can be observed and mea­sured in great detail. But economists do more than observe and measure economic activity, crucial as that is. Their main task is to discover laws governing economic behaviour.