Economics is a
social science that studies society's
allocation of
scarce resources to meet desires and wants. Economics
therefore starts from the premise that resources are in
limited supply and that it is necessary to choose between
competing alternatives. With scarcity, choosing one
alternative implies foregoing another alternative;
economists refer to this as
opportunity cost.
A further aspect is how incentives (the consequences of
different courses of action) affect individual or group
behavior. Economists tend to think that incentives and
preferences (tastes) together play an important role in
shaping
decision making[?]. Aspects receiving particular
attention in economics are
trade, resource allocation and
competition.
Economics is often said to be positive when it
attempts to explain the consequences of different choices
and normative when it prescribes a certain route of
action. The nature of positive and normative economics is
discussed further below.
Economists often believe that mathematical methods
encourage researchers to focus on essentials and makes
exposition less prone to ambiguity. Most contemporary theory
assumes that humans are
rational in some way. While this idea ("homo
economicus") is not accepted by all, it is amenable to
mathematical modeling. More recently, seemingly irrational
behavior has increasingly been the subject of formal
modelling (often referred to as behavioral economics). As a
result, economics relies on formal, mathematical styles of
argument more than other social sciences. However, formal
modelling is also increasingly used in other social
sciences, such as political science, as well as philosophy.
Formal modelling can involve advanced mathematical
methods, but often only relatively straightforward algebra
is used. However, the basic ideas of economics can be taught
with no more than simple arithmetic and graphs, without
knowledge of the underlying formal mathematical theory.
Indeed, the
Austrian School of economics believes that anything
beyond simple logic is not only unnecessary but
inappropriate for economic analysis.
Economics is usually divided into two main categories:
-
Microeconomics, which deals with the behaviour and
interaction of individual agents and firms.
-
Macroeconomics, which examines an economy as a whole
with a view to understanding the interaction between
economic aggregates such as income, employment and
inflation.
Attempts to join these two branches or to refute the
distinction between them have been important motivators in
much of recent economic thought, especially in the late
1970s and early 1980s. Today, the consensus view is arguably
that good macroeconomics has solid microeconomic foundations
i.e. its premises have support in microeconomics.
Within these major divisions there are specialized areas
of study that try to answer questions on a broad spectrum of
human economic activity (see below). There are also
methodologies used by economists whose underlying theories
are important. The most significant example may be
econometrics, which applies statistical techniques to
the study of
economic data[?].
There has been an increasing trend for ideas from
economics to be applied in wider contexts. There is an
economic aspect to any field where people are faced with
alternatives - education, marriage, public policy, etc.
Public Choice Theory studies how economic analysis can
apply to those fields traditionally considered outside of
economics. The areas of investigation in Economics therefore
overlap with other social sciences, including
political science and
sociology.
Economics may be broken down as follows:
-
Microeconomics
-
General equilibrium --
Industrial organization --
Financial economics --
Public finance[?] --
International trade --
Labor economics --
Development economics --
Environmental economics --
Evolutionary economics --
Public choice theory --
Public goods --
Economic geography --
Network effect --
Transport economics --
Supply and Demand --
Consumer Theory
-
Macroeconomics
-
Stabilisation policy[?] --
Economic growth --
Purchasing power parity
- Methodology
-
Econometrics --
Game Theory --
Mathematical economics
Related fields and topics:
- Related fields
-
History of economic thought --
Political economy --
Political science --
Accounting --
Finance --
Operations research
- Selected topics
-
Economists --
The Bank of Sweden Prize in Economic Sciences in Memory
of Alfred Nobel --
Communism --
Capitalism --
Coordinatorism --
Market economy --
Informal economy --
Synthetic economies --
Participatory economics --
Natural capitalism --
Stock exchange --
economic indicator --
Regulation --
Deregulation --
Privatization
Modern economic thought is usually said to have begun with
Adam Smith in the late 18th century. For an overview of
precursors to Smith as well as an overview of schools that
have developed later, see
history of economic thought. Modern mainstream economics
is primarily a further refinement of
neoclassical economics.
Macroeconomics began with
Keynes in the 1930s. For an overview of a number of
competing schools, see
macroeconomics.
Many economists use a combination of Neoclassical
microeconomics and Keynesian macroeconomics. This
combination, sometimes known as the Neoclassical
synthesis, was dominant in Western teaching and public
policy in the years following
World War II and up to the late 1970s.
In principle, economics can be applied to any type of
economic organization. However, it developed historically in
market societies, and its most detailed and precise work
has dealt with the institutions belonging to them. To what
extent economics must be adjusted to be applied to earlier
forms of social organization has been the source of
discussion. Generally, mainstream economists mostly feel
that the basic framework of economics is relevant and
flexible enough to be applied to virtually any form of
society. Marxist economists, who were more influential a few
decades ago, often feel that each era of history obeys its
very own set of laws, and that contemporary economics can
only be applied to industrialized societies.
The term economics was coined in around 1870, and
popularised by influential neoclassical economists such as
Alfred Marshall. Prior to this the subject had been
known as
political economy. This term is still often used instead
of economics, especially by radical economists such as
Marxists.
