What is Economics?
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CREDIT: Money image via Shutterstock
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Economics can be confusing and finding a clear definition of economics can be a challenge. Most simply put, economics is the analysis of how people use the resources that are available to them.
According to the American Economic Association, those resources include the time and talent people have available, the land, buildings, equipment and other tools on hand and the knowledge of how to combine them to create products and services.
According to the University of Buffalo Department of Economics, economics provides a logical way of looking at problems, drawing upon history, philosophy, and mathematics to solve issues that range from how families or business can make sound financial decisions to societal issues such as how to fight unemployment, inflation and environmental decay.
Scotland's Adam Smith became known as the "Father of Economics" after writing the five-book series "An Inquiry Into the Nature and Causes of the Wealth of Nations" in 1776. In the book, Smith champions his theory that nations attain wealth and operate best when people are free to use their skills and capital in their own self-interest.
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest," Smith wrote in the book.
Despite what many think, economics is not just about money.
According to the Library of Economics and Liberty, it is about weighing different choices or alternatives, many of which do not involve monetary issues.
The organization notes that decisions you make about whether it should be you or your roommate who cleans up or does the dishes, whether you should spend an hour a week volunteering for a worthy charity or send them a little money via your cell phone, or whether you should take a job so you can help support your siblings or parents or save for your future are all economic decisions.
Former London School of Economics professor Lionel Robbins' book "An Essay on the Nature and Significance of Economic Science" features an all-encompassing economics definition that is still used to today, according to the Library of Economics and Liberty.
"Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses," Robbins wrote.
Economics is divided into two main areas, microeconomics and macroeconomics.
Microeconomics examines items on an individual level. For a business, this means assessing things, such as how much of something to produce and how to price it.
Conversely, macroeconomics focuses on the economy as a whole, looking at things like unemployment rates, Gross National Product and price levels.
One of the most famous economists of recent times is Stanford University's Kenneth Arrow. In 1972, he was awarded the Nobel Prize in economics for “pioneering contributions to general equilibrium theory and welfare theory.”
According to the Library of Economics and Liberty, Arrow, who remains on staff at Stanford, has done excellent work on the economics of uncertainty that remains a standard source for other economists.
Other famous economists include David Ricardo, Thomas Malthus, John Stuart Mill, Karl Marx, Alfred Marshall, John Keynes and Irving Fisher.
Chad Brooks is a Chicago-based freelance business and technology writer who has worked in public relations and spent 10 years as a newspaper reporter. You can reach him at chadgbrooks@gmail.com or follow him on Twitter @cbrooks76.