What is Economics? A Definition of Economics

Ever wonder why food costs rise when gas prices spike? Ever question why U.S. politicians worry when other countries talk of going bankrupt? Ever wonder why you can’t get a good interest rate on your savings account? All of these phenomena can be explained through economics.

Economics is the study of the production and consumption of goods and the transfer of wealth to produce and obtain those goods. Economics explains how people interact within markets to get what they want or accomplish certain goals. Since economics is a driving force of human interaction, studying it often reveals why people and governments behave in particular ways.

There are two main types of economics: macroeconomics and microeconomics. Microeconomics focuses on the actions of individuals and industries, like the dynamics between buyers and sellers, borrowers and lenders. Macroeconomics, on the other hand, takes a much broader view by analyzing the economic activity of an entire country or the international marketplace.

A study of economics can describe all aspects of a country’s economy, such as how a country uses its resources, how much time laborers devote to work and leisure, the outcome of investing in industries or financial products, the effect of taxes on a population, and why businesses succeed or fail.

People who study economics are called economists. Economists seek to answer important questions about how people, industries, and countries can maximize their productivity, create wealth, and maintain financial stability. Because the study of economics encompasses many factors that interact in complex ways, economists have different theories as to how people and governments should behave within markets.

Adam Smith, known as the Father of Economics, established the first modern economic theory, called the Classical School, in 1776. Smith believed that people who acted in their own self-interest produced goods and wealth that benefited all of society. He believed that governments should not restrict or interfere in markets because they could regulate themselves and, thereby, produce wealth at maximum efficiency. Classical theory forms the basis of capitalism and is still prominent today.

A second theory known as Marxism states that capitalism will eventually fail because factory owners and CEOs exploit labor to generate wealth for themselves. Karl Marx, the theory’s namesake, believed that such exploitation leads to social unrest and class conflict. To ensure social and economic stability, he theorized, laborers should own and control the means of production. While Marxism has been widely rejected in capitalistic societies, its description of capitalism’s flaws remains relevant.

A more recent economic theory, the Keynesian School, describes how governments can act within capitalistic economies to promote economic stability. It calls for reduced taxes and increased government spending when the economy becomes stagnant, and increased taxes and reduced spending when the economy becomes overly active. This theory strongly influences U.S. economic policy today.

As one can see, economics shapes the world. Through economics, people and countries become wealthy. Because buying and selling are activities vital to survival and success, studying economics can help one understand human thought and behavior.

Read more on economics 101.

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{ 473 comments… read them below or add one }

Awais Musavi June 13, 2014 at 9:09 am

Economics is a social science that studies how individuals, governments, nations and firms make choices on allocating limited resources to satisfy their unlimited wants.

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priyaa June 18, 2014 at 9:48 am

Economic is the market value of officialy recognized in final goods and services produced with in a country in a year.

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aryan July 21, 2014 at 12:30 am

Is the correct definition?

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TABELA JOB June 20, 2014 at 3:50 am

ECONOMICS IS AND AMAZING SUBJECT IT MAKES THE STUDENTS ALIVE AND THE CLASS LIVELY IN FACTS ECONS NEED TO BE A COMPULSORY FOR ALL SERIES THANKS TO ?Y ECONS TEACHER MR TIEMAH AND ?R NGAYA.

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Ravi July 8, 2014 at 4:45 am

Economics is releated to everyone life.

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moyosore balogun July 19, 2014 at 7:37 am

Economics is a social science that study human behaviour between the ends and scare means which have their alternative uses.

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Nneji Gift July 21, 2014 at 11:53 am

My inerest in Economices is driving me crazy! The success of any country laies in the arms of the ECONOMIST am proud to study Economices as a cause. All thanks to God.

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Rajat Singh July 22, 2014 at 5:18 am

The process of fulfilling and satisfying the unlimited wants of consumer by making high quality of goods and services throgh making exellent co-operaton between producer and workers.

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