Introduction to Economics

What is Economics?

Economics is a social science that focuses on the production, distribution, and consumption of goods and services. The study of economics is primarily concerned with analyzing the choices that individuals, businesses, governments, and nations make to allocate limited resources. Economics has ramifications on a wide range of other fields, including politics, psychology, business, and law. Assuming humans have unlimited wants within a world of limited means, economists analyze how resources are allocated for production, distribution, and consumption. Economics is concerned with the creation, consumption, and transfer of wealth. Basically, economics can be described in many different ways.it acts as a broad discipline that helps us and economists understand historical trends, today’s headlines, and make predictions for the coming years.

Microeconomics vs Macroeconomics

The study of microeconomics focuses on the choices of individuals and businesses, and macroeconomics concentrates on the behavior of the economy on an aggregate level. Microeconomics is specific and smaller in scale, looking at the behavior of consumers, the supply and demand equation in individual markets, and the hiring and wage-setting practices of individual companies. Macroeconomics has a broad focus, such as the impact of fiscal policy, big picture causes of unemployment or inflation, and how government actions impact nationwide economic growth. Since microeconomics focuses on small units, it usually limits itself to specific and specialized areas of study. Since macroeconomics is broad, macroeconomists can examine things like globalization and global trading patterns and they can perform comparative studies between different countries in areas like living standards and economic growth. A good way to remember this main difference between the 2 branches of economics is micro meaning small units while macro meaning the whole picture!

Economic Indicators

The gross domestic product (GDP) is considered the broadest measure of a country's economic performance. It calculates the total market value of all finished goods and services produced in a country in a given year. Many investors, analysts, and traders focus on the advance GDP report and the preliminary report, both issued before the final GDP figures because the GDP is considered a lagging indicator, meaning it can confirm a trend but can't predict a trend. Also, Sharp increases in employment indicate prosperous economic growth and potential contractions may be imminent if significant decreases occur. These are generalizations, however, and it is important to consider the current position of the economy. The Consumer Price Index (CPI), measures the level of retail price changes, and the costs that consumers pay, and is the benchmark for measuring inflation. Using a basket that is representative of the goods and services in the economy, the CPI compares the price changes month after month and year after year.

Economic Systems

These are the 5 economic systems that illustrate historical practices used to allocate resources to meet the needs of the individual & society:

1. Primitivism: In primitive agrarian societies, individuals produced necessities from building dwellings, growing crops, and hunting game at the household or tribal level.

2. Feudalism: A political and economic system of Europe from the 9th to 15th century, feudalism was defined by the lords who held land and leased it to peasants for production, who received a promise of safety and security from the lord.

3. Capitalism: With the advent of the industrial revolution, capitalism emerged and is defined as a system of production where business owners organize resources including tools, workers, and raw materials to produce goods for market consumption and earn profits. Supply and demand set prices in markets in a way that can serve the best interests of society. 

4. Socialism: Socialism is a form of a cooperative production economy. Economic socialism is a system of production in which there is limited or hybrid private ownership of the means of production. Prices, profits, and losses are not the determining factors used to establish who engages in the production, what to produce and how to produce it.

5. Communism: Communism holds that all economic activity is centralized through the coordination of state-sponsored central planners with common ownership of production and distribution.

Schools of Economic Theory

There are many economic theories that have developed over time. However, three disciplines of economics, neoclassical, Keynesian, and Marxian, have influenced modern society. The principles of neoclassical economics are often used as a framework to illustrate the virtues of capitalism, including the tendency of market prices to reach equilibrium as the volume of supply and demand changes. The optimal valuation of resources emerges from the forces of individual desire and scarcity. John Maynard Keynes developed the theory of Keynesian economics during the Great Depression. Arguing against neoclassical theory, Keynes showed that restrained markets and government intervention in markets create a stable and equitable economic system. He advocated for a monetary policy designed to boost demand and investor confidence during economic downturns. Marxian economics is defined in Karl Marx's work Das Kapital. Marxian economics is a rejection of the classical view of economics, arguing against the idea that the free market, an economic system determined by supply and demand with little or no government control, benefits society. He espoused that capitalism only benefits a select few and that the ruling class becomes richer by extracting value out of cheap labor provided by the working class.

Wrap-Up

Economics is a branch of the social sciences focused on the production, distribution, and consumption of goods and services. Microeconomics is a type of economics that is concerned with the behavior of individual people and businesses, while macroeconomics considers broader trends affecting nations and larger economies.

Work Cited

Kelly, Robert. “Economics Defined with Types, Indicators, and Systems.” Investopedia, https://www.investopedia.com/terms/e/economics.asp. Accessed 29 July 2024.