- Economics studies how people choose to use limited resources to meet unlimited wants.
- Microeconomics focuses on individual decisions, while macroeconomics looks at the economy as a whole.
- Economists research, analyze, and advise on topics like inflation and interest rates in various sectors.
Economics is the study of the production, distribution, and consumption of wealth in human society, but this perspective is only one among many different definitions. Economics is also the study of people (as consumers) making choices about which products and goods to buy.
Indiana University says that economics is a social science that studies human behavior. It has a unique method for analyzing and predicting individual behavior as well as the effects of institutions such as firms and governments, clubs, and even religions.
Definition of Economics: The Study of Resource Use
Economics is the study of choices. Though some believe that economics is driven purely by money or capital, the choice is much more expansive. If the study of economics is the study of how people choose to use their resources, analysts must also consider all of their possible resources, of which money is but one.
In practice, resources can encompass everything from time to knowledge and property to tools. As such, economics helps illustrate how people interact within the market to realize their diverse goals.
Beyond defining what these resources are, the concept of scarcity is also an important consideration. These resources—no matter how broad the category—are limited, which is the source of tension in the choices people and society make: Their decisions are a result of the constant tug of war between unlimited wants and desires and limited resources.
Many people break down the study of economics into two broad categories: microeconomics and macroeconomics.
The Dictionary of Economics defines microeconomics as “the study of economics at the level of individual consumers, groups of consumers, or firms,” Microeconomics is the analysis of the decisions made by individuals and groups, the factors that affect those decisions, and how those decisions affect others.
Microeconomics deals with economic decisions made at a low, or micro, level. From this standpoint, microeconomics is sometimes considered the starting point for the study of macroeconomics, as the former takes a more bottom-up approach to analyze and understand the economy. The prefix micro- means small, and, not surprisingly, microeconomics is the study of small economic units. The field of microeconomics is concerned with:
- Consumer decision making and utility maximization
- Firm production and profit maximization
- Individual market equilibrium
- Effects of government regulation on individual markets
- Externalities and other market side effects
Microeconomics concerns itself with the behavior of individual markets, such as the markets for oranges, cable television, or skilled workers, as opposed to overall markets for produce, electronics, or the entire workforce. Microeconomics is essential for local governance, business, personal finance, specific stock investment research, and individual market predictions for venture capitalists.
In contrast to microeconomics, macroeconomics considers similar questions but at a larger scale. The study of macroeconomics deals with the sum total of the decisions made by individuals in a society or nation such as, “How does a change in interest rates influence national savings?” It looks at the way nations allocate resources such as labor, land, and capital.
Macroeconomics can be thought of as the big-picture version of economics. Rather than analyzing individual markets, macroeconomics focuses on aggregate production and consumption in an economy. Topics that macroeconomists study include:
- Effects of general taxes, such as income and sales taxes, on output and prices
- Causes of economic upswings and downturns
- Effects of monetary and fiscal policy on economic health
- Effects of and process for determining interest rates
- Causes for the pace of economic growth
To study economics at this level, researchers must be able to combine different goods and services produced in a way that reflects their relative contributions to aggregate output. This is generally done using the concept of the gross domestic product, where goods and services are weighted by their market prices.
Economists do many things, such as:
- Conduct research
- Monitor economic trends
- Collect and analyze data
- Study, develop, or apply economic theory
Economists hold positions in business, government, and academia. An economist’s focus may be on a particular topic, like inflation or interest rates, or her approach might be broader. Using their understanding of economic relationships, economists might be employed to advise businesses, nonprofits, labor unions, or government agencies. Many economists are involved in the practical application of economic policy, which could include a focus on several areas from finance to labor or energy to health care.
Some economists are primarily theoreticians and may spend a majority of their days deep in mathematical models to develop new economic theories and discover new economic relationships. Others may devote their time equally to research and teaching, holding a position as a professor to mentor the next generation of economists and economic thinkers.