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Economics is the social science which studies economic activity: how people make choices to get what they want. It has been defined as "the study of scarcity and choice" and is basically about the choices people make. It also studies what affects the production, distribution and consumption of goods and services in an economy.[1]
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Investment and income relate to economics.[2] The word comes from Ancient Greek, and relates to οἶκος oíkos "house" and νόμος nomos "custom" or "law".[3] The models used in economics today were mostly started in the 19th century. People took ideas from political economy and added to them because they wanted to use an empirical approach similar to the one used in the natural sciences.[4]
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The subjects (actors) in economic study are households, business companies, the government (the state), and foreign countries. Households offer their "factors of production" to companies. This includes labor ,land, capital (things like machines and buildings) and information. In exchange for their factors of production, households get income which they use to consume (buy) goods from firms representing consumption expenditure.
Business companies produce and sell goods and services and buy factors of production from households and from other companies.
The state or public sector includes institutions and organisations. The state takes some of the earnings from the business companies and households, and uses it to pay for "public goods" like street lights or defense systems, to be available for everyone. The last subject is foreign countries. This includes all households, business companies and state institutions, which are not based in one's own country. They demand and supply goods from abroad.
The objects (things acted upon) in economic study are consumer goods, capital goods, and factors of production. Consumer goods are classified as "usage goods" (for example, gasoline or toilet paper), as "purpose goods" (for example, a house or bicycle), and as "services" (for example, the work of a doctor or cleaning lady). Capital goods are goods which are necessary for producing other goods. Examples of these are buildings, equipment, and machines. Factors of production are work, ground, capital, information, and environment.
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- All people have to decide between their options.
- The cost of goods is what a person gives up for the goods.
- When a person gives up something (like money) to get a good, they also give up other things that they could have gotten instead. This means that the true cost of something is what you give up to get it. This includes money, and the economic benefits ("utility") that you didn't get because you can no longer buy something else.This is called opportunity cost.
- People choose between options based on the rewards ("incentives") or bad things ("disincentives") they expect from each option. Adding to the rewards for an option will often make more people choose it.
- Trade can make everyone better off.
- Markets are usually good for the organisation of economic life. In the free market, goods will be shared by people and companies making small decisions. The “invisible hand” of the market (Adam Smith) states that if everyone tries to get what they want, everyone will be as well-off as they could possibly be.
- Sometimes prices do not fully show the cost or benefit to society. For example, air pollution is bad for society, and education is good for society. The government can put a tax (or do something to reduce sales) on items that are bad for society. It can also support (like giving money for) items that are good for society.
- The living standard of a country depends on the skills to produce services and goods. Productivity is the amount of the produced goods divided by total working hours.
- When there is an increase in the total money supply, or when the cost to produce things rises, prices go up. This is called inflation.
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- 18th century analysis of wealth
- Classical economics
- Marxist economics
- Austrian economics
- Neoclassical economics
- Welfare economics
The ideas that economists have depend a lot on the times they live in. For example, Karl Marx lived in a time when workers' conditions were very poor, and John Maynard Keynes lived through the Great Depression of the 1930s. Today's economists can look back and understand why they made their judgments, and try to make better ones.
The two main branches of economics are microeconomics and macroeconomics.
Macroeconomics is about the economy in general. For example, macroeconomists study things that make a country's wealth go up and things that make millions of people lose their jobs. Microeconomics is about smaller and more specific things such as how families and households spend their money and how businesses operate.
There are a number of other branches of economics:
- Behavioral economics
- Business economics
- Constitutional economics
- Cultural economics
- Development economics
- Ecological economics
- Economic geography
- Economic policy Analysis[5]
- Environmental economics[6]
- Energy economics
- Financial economics
- Industrial economics
- Information economics
- International economics
- Labor economics
- Managerial economics
- Mathematical economics or econometrics
- Resource economics
- Urban economics
- Public economics
- descriptive, theoretical and policy economics
- monetary economics
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Famous economists in history include:
- Adam Smith (His works include The Wealth of Nations and The Theory of Moral Sentiments. First introduce the concept of "Invisible Hand").
- Thomas Malthus (Author of An Essay on the Principle of Population. Establish the theory of population ).
- David Ricardo (First introduce the theory of Comparative advantage).
- Karl Marx (His works include Das Kapital and The Communist Manifesto; a famous critique of Capitalism).
- John Maynard Keynes (Founder of the school of Keynesian economics).
- Milton Friedman (Proponent of monetarism. His works include Capitalism and Freedom ).
Famous economists of the 19th and 20th century include Friedrich August von Hayek, Wassily Leontief, Carl Menger, and Léon Walras.
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