Economics is the study of scarcity and its implications for the use of resources, production of goods and services, growth of production and welfare over time, and a great variety of other complex issues of vital concern to society.
Economics is More than Numbers
Economics is a social science with stakes in many other fields, including political science, geography, mathematics, sociology, psychology, engineering, law, medicine and business. The central quest of economics is to determine the most logical and effective use of resources to meet private and social goals. Production and employment, investment and savings, health, money and the banking system, government policies on taxation and spending, international trade, industrial organization and regulation, urbanization, environmental issues and legal matters (such as the design and enforcement of property rights), are just a sampling of the concerns at the heart of the science of economics.
Microeconomics studies the implications of individual human action, and is key to a person's financial health. Personal resources are scarce, too! One can always use another dollar, hour of time, or new skill. Achieving the most satisfactory allocation of one’s resources is crucial, and studying allocation problems improves one’s ability to make both daily and life-long decisions. Some examples of common day-to-day economics questions include: Should I pay cash, borrow or sign a lease to get that new car? Should I take out a home-equity loan or invest in the stock market? Should I open a 401K plan now or wait until next year? Economists understand how to make these decisions in their own lives, and can advise others on a personal or professional level.
Macroeconomics studies how the economy behaves as a whole, including inflation, price levels, rate of growth, national income, gross domestic product and changes in employment rates. Some of the important questions American economists try to answer include: “In a nation as rich as the U.S., why are so many people under-employed?” and “Who determines how much money is circulating in the U.S.?” From politicians to educators to journalists to urban planners, a thorough understanding of macroeconomics has a strong impact on leadership skills, decision-making and the ability to plan for a flourishing social future. To meet this need, the Department of Economics has designed a multidisciplinary curriculum that prepares students to maneuver seamlessly from one area of focus to another.
If you want to understand wealth, poverty, growth, trade, money, jobs, income, depression, recession, prices and monopolies, and study what makes the world work from day to day, you will be fascinated by the complex field of economics!
One of the earliest recorded economic thinkers was the 8th-century B.C. Greek farmer/poet Hesiod, who wrote that labor, materials, and time needed to be allocated efficiently to overcome scarcity. But the founding of modern Western economics occurred much later, generally credited to the publication of Scottish philosopher Adam Smith's 1776 book, An Inquiry Into the Nature and Causes of the Wealth of Nations.1
The principle (and problem) of economics is that human beings have unlimited wants and occupy a world of limited means. For this reason, the concepts of efficiency and productivity are held paramount by economists. Increased productivity and a more efficient use of resources, they argue, could lead to a higher standard of living.
Despite this view, economics has been pejoratively known as the "dismal science," a term coined by Scottish historian Thomas Carlyle in 1849.2 He used it to criticize the liberal views on race and social equality of contemporary economists like John Stuart Mill, though some commentators suggest Carlyle was actually describing the gloomy predictions by Thomas Robert Malthus that population growth would always outstrip the food supply.
Types of Economics
The study of economics is generally broken down into two disciplines.
Microeconomics focuses on how individual consumers and firms make decisions; these individual decision-making units can be a single person, a household, a business/organization, or a government agency. Analyzing certain aspects of human behavior, microeconomics tries to explain how they respond to changes in price and why they demand what they do at particular price levels. Microeconomics tries to explain how and why different goods are valued differently, how individuals make financial decisions, and how individuals best trade, coordinate, and cooperate with one another. Microeconomics' topics range from the dynamics of supply and demand to the efficiency and costs associated with producing goods and services; they also include how labor is divided and allocated; how business firms are organized and function; and how people approach uncertainty, risk, and strategic game theory.
Macroeconomics studies an overall economy on both a national and international level, using highly aggregated economic data and variables to model the economy. Its focus can include a distinct geographical region, a country, a continent, or even the whole world. Its primary areas of study are recurrent economic cycles and broad economic growth and development. Topics studied include foreign trade, government fiscal and monetary policy, unemployment rates, the level of inflation and interest rates, the growth of total production output as reflected by changes in the Gross Domestic Product (GDP) and business cycles that result in expansions, booms, recessions, and depressions.
Micro and macroeconomics are intertwined. Aggregate macroeconomic phenomena are obviously and literally just the sum total of microeconomic phenomena. However, these two branches of economics use very different theories, models, and research methods, which sometimes appear to conflict with each other. Integrating the microeconomics foundations into macroeconomic theory and research is a major area of study in itself for many economists.