The economy studies the manufacture, commercialization, the consumption of goods and services and the behavior of individuals with the economic resources of a particular country, state, city or region. Some of the fields of study of economics are work, markets, value, among others.
In this way, economics analyzes the way in which individuals, companies, governments and nations make decisions regarding the allocation of resources to satisfy their wants and needs. Also, try to determine how these groups should coordinate their efforts to obtain better results (Wessels, 2000).
Economic analysis usually progresses based on deductive processes, operating in a similar way to logical mathematics, taking into account the framework of human logic (use of means to achieve specific ends) and its activities.
The main fields of study of economics are macroeconomics and microeconomics. The first concentrates its efforts on studying the behavior of the global economy, while the second analyzes the individual behavior of consumers.
Hesiod was the first Greek thinker to refer to economics during the 8th century. For him, it was necessary to use materials, labor and time efficiently to get out of poverty. However, it was in 1776 that Adam Smith laid the foundations for modern economics.
The main problem that economics addresses is that human beings have unlimited demands, but live in a world of limited resources. For this reason, the concepts of efficiency and productivity are located at the center of economic thought.
By increasing productivity and using resources more efficiently, it is possible to have better standards of living.
Despite its vision, economics has been called pejoratively as a discipline whose study is uninteresting (Investopedia, 2017).
What does economics study?
The economy is divided into two broad categories:
Microeconomics focuses on studying how individual consumers and producers make decisions. This includes individuals, households, businesses, and government organizations.
Microeconomics studies the way in which these individuals make exchanges with each other when prices are affected by the phenomenon of supply and demand (Besanko & Braeutigam, 2011).
On the other hand, microeconomics studies the efficiency and costs associated with the production of goods and services, including how labor is used, uncertainty, risk, and game theory.
The latter is in charge of defining how the decision-making power of an individual will be affected, taking into account all the possible agents and external factors that may influence their decisions (Stretton, 2000).
Macroeconomics studies the global economy. This includes particular geographic regions, countries, continents, and the world in general.
The topics studied by macroeconomics include the fiscal and monetary policies of a government, unemployment rates, growth derived from Gross Domestic Product (GDP), business cycles that result in their expansion, boom, recession and depression (Barro, 1997).
Within this category there are several schools of thought. The most common are the classical and the Keynesian.
This school considers that free markets are the best alternative to allocate available resources, and that the role of governments should be that of a fair and strict arbiter.
Contrary to what the classical school believes, the Keynesian school believes that markets should not have the possibility to allocate resources by themselves, and that governments should take action on this matter from time to time to reallocate resources efficiently (Dwivedi , 2005).
Fields of study of economics
Work and exchange
The bases of all economic theory are work and exchange. These two concepts are highly versatile, since human beings can work in many ways and can acquire resources in different ways.
For this reason, it is difficult to determine the best way in which these two concepts can be related to achieve a balance.
Economics shows that it is more efficient for individuals or companies to specialize in specific jobs and then exchange what is produced for what is wanted or needed. All this, instead of producing everything that is needed or wanted in a particular way.
It also shows that the exchange is more efficient when it is coordinated through a medium of exchange or money is used (Association, 2017).
Incentives and subjective value
By focusing on work, the economy focuses on the action of human beings. Most economic models are based on the assumption that humans act according to rational behaviors, always looking for a way to achieve an optimal level of benefit or utility.
However, human behavior is unpredictable, unconscious, and based on personal and subjective values . This means that some economic models proposed by experts are unattainable, impossible and simply do not work in reality.
In this way, the economy seeks to understand the behavior of financial markets, governments and economies, bearing in mind human decisions.
Thus, this discipline has been able to determine the general law of incentives, which indicates that there are elements that may or may not make an individual or organization more likely to consume a good or compete in a market.
Economic indicators are reports that speak in detail of the economic performance of a country in a specific area. These reports are usually published periodically by public agencies or private organizations.
Gross Domestic Product (GDP)
The Gross Domestic Product or GDP is considered the most general indicator of the economic performance of a country.
It represents the total value of the goods and services that are available in the market of a country within a given period of time.
This indicator provides information related to total sales reported by sales inside stores.
This value is given in local currency and estimates the total value sold in merchandise within a country. This indicator is used to determine the purchase volume of consumers within a given period of time.
The industrial production indicator is a monthly report that provides information on the changes in the production volumes of factories, mines and any industry extracting resources.
Each country issues a report that includes employment statistics within its territory. Generally, when the unemployment rate is lower, it is said that a country is more prosperous in economic terms.
- Association, AE (2017). American Economic Association . Retrieved from What is economics ?: aeaweb.org.
- Barro, RJ (1997). Boston: MIT Press.
- Besanko, D., & Braeutigam, R. (2011). Danver: Wiely.
- Dwivedi, DN (2005). Macroeconomics: Theory and Policy. New Delhi: McGraw Hill Offices.
- Investopedia, L. (2017). Investopedia . Retrieved from What is ‘Economics’: investopedia.com.
- Stretton, H. (2000). Economics: A New Introduction. London: Pluto Press.
- Wessels, WJ (2000). North Carolina: Barron’s.