Economics
Economics is the social science that studies the behavior
of individuals, groups, and organizations (called economic actors,
players, or agents), when they manage or use scarce resources, which have
alternative uses, to achieve desired ends. Agents are assumed to act rational,
have multiple ends in sights (all desirable), limited resources to obtain them,
a set of stable preferences, a definite overall guiding objective, and the
capability of making a choice. There exist an economic problem, subject of
study of the economic science, when a decision (choice) has to be made
by one or more resources controlling players, to attain the best possible
outcome under bounded rational conditions, in other words, to maximize value
subject to the constrains imposed by the information the agents have, the
cognitive limitations of their minds, and the finite amount of time they have
to take a decision. So, the science centers on the activities of the economic
agents that comprise society. They are the focus of
economic analysis.
Economics
traditional concern is to gain an understanding of the processes that govern
the production, distribution and consumption of goods and services in an exchange
economy. But there are purposes,
(ends) such as reducing crime or protecting from it, for example, that an agent
may want to spend resources on. Economics may study how the agent determines
the amount of resources to allocate for this purpose, aside from the
traditional concern of economics.
An
approach to understanding the processes of production, distribution, and
consumption, through the study of agent behavior under scarcity, may go as
follows: The continuous interplay (exchange or trade) done by economic actors
in all markets sets the prices for all goods and services which, in turn, make
the rational managing of scarce resources possible. At the same time, the
decisions (choices) made by the same actors, while they are pursuing their own
interest (their overall guiding objective), determine the level of output
(production), consumption, savings, and investment, in an economy, as well as
the remuneration (distribution) paid to the owners of labor (in the form of
wages), capital (in the form of profits) and land (in the form of rent). Each period, as if they
were in a giant feedback system, economic players influence the pricing
processes and the economy, and are in turn influenced by them until a steady
state (equilibrium) of all variables involved is reached or until an external
shock throw the whole system toward a new equilibrium point. Because of the autonomous
actions of rational interacting agents, the economy is a complex adaptive
system.
The
term economics comes from the Ancient Greek οἰκονομία (oikonomia, "management of a household,
administration") from οἶκος (oikos, "house") and νόμος (nomos, "custom" or "law"),
hence "rules of the house(hold for good management)".Political economy was the earlier name for
the subject, but economists in the late 19th century suggested
"economics" as a shorter term for "economic science" to
stablish itself as a separate discipine aside of political and other social
sciences.
A focus
of the subject is how economic agents behave and interact and
how economies work. Consistent with
this, a primary textbook distinction is between microeconomics and
macroeconomics. Microeconomics examines the behavior of
basic elements in the economy, including individual agents (such as households
and firms or as buyers and sellers) and markets, their interactions and the
consecuented outcomes. Macroeconomicsanalyzes
the entire economy (meaning aggregated production, consumption, savings, and
investment) and issues affecting it, including unemployment of resources
(labor, capital, and land), inflation, economic growth, and the public policies
that address them (monetary and fiscal policies, and other policies).
Other
broad distinctions include those between positive economics (describing "what
is") and normative economics (advocating "what
ought to be"); between economic theory and applied economics; between rational and behavioral economics; and between mainstream economics (more
"orthodox" and dealing with the
"rationality-individualism-equilibrium nexus") and heterodox economics (more "radical"
and dealing with the "institutions-history-social structure nexus").
Besides
the traditional concern in production, distribution, and consumption in an
economy, economic analysis may be applied throughout society, as in business, finance, health care, and
government, but also to such diverse subjects as crime, education, the family, law, politics, religion, social institutions, war, and science; because,
all of these subjects have an important economic aspect to consider. Take
education, for example, the time, effort and expenses incurred for procuring
it, plus the foregone income and experience, can be weighted against future
benefits it may bring to the agent or the economy. At the turn of the 21st
century, the expanding domain of economics in the social sciences has been
described as economic imperialism
Definitions
There
are a variety of modern definitions of economics. Some
of the differences may reflect evolving views of the subject or different views
among economists. Scottish philosopherAdam Smith (1776) defined what was
then called political economy as "an inquiry into
the nature and causes of the wealth of nations", in particular as:
a
branch of the science of a statesman or legislator [with the twofold objectives
of providing] a plentiful revenue or subsistence for the people ... [and]
to supply the state or commonwealth with a revenue for the publick services.
J.-B. Say (1803), distinguishing
the subject from its public-policy uses, defines it as the
science of production, distribution, and consumption of wealth. On the satirical side,Thomas Carlyle (1849) coined "the dismal science"
as an epithet for classical economics, in
this context, commonly linked to the pessimistic analysis of Malthus (1798). John Stuart Mill (1844) defines the
subject in a social context as:
The
science which traces the laws of such of the phenomena of society as arise from
the combined operations of mankind for the production of wealth, in so far as
those phenomena are not modified by the pursuit of any other object.
Alfred Marshall provides a still widely
cited definition in his textbook Principles of
Economics (1890) that extends
analysis beyond wealth and from the societal to the microeconomic level:
Economics
is a study of man in the ordinary business of life. It enquires how he gets his
income and how he uses it. Thus, it is on the one side, the study of wealth and
on the other and more important side, a part of the study of man.
Lionel Robbins (1932) developed
implications of what has been termed "[p]erhaps the most commonly accepted
current definition of the subject":
Economics
is a science which studies human behaviour as a relationship between
ends and scarce means which have alternative uses.
Robbins
describes the definition as not classificatory in "pick[ing] out certain kinds of
behaviour" but rather analytical in "focus[ing] attention on a particular aspect of
behaviour, the form imposed by the influence of scarcity." He affirmed that previous
economist have usually centered their studies on the analysis of wealth: how
wealth is created (production), distributed, and consumed; and how wealth can
grow. But he said that
economics can be used to study other things, such as war, that are outside its
usual focus. This is because war has as the goal wining it (as a sought after end), generates both cost and benefits;
and, resources (human life and other costs) are used to attain the
goal. If the war is not winnable or if the expected costs outweigh the
benefits, the deciding actors (assuming they are rational) may never go to war (a decision) but rather explore
other alternatives. We cannot define economics as the science that study
wealth, war, crime, education, and any other field economic analysis can be
applied to; but, as the science that study a particular common aspect of each
of those subjects (they all use scarce resources to attain a sought after end).
Some
subsequent comments criticized the definition as overly broad in failing to
limit its subject matter to analysis of markets. From the 1960s, however, such
comments abated as the economic theory of maximizing behavior and rational-choice modeling expanded the domain of the subject to areas previously treated in other
fields. There are other
criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment.
Gary Becker, a contributor to the expansion of economics into new
areas, describes the approach he favors as "combin[ing the] assumptions of
maximizing behavior, stable preferences, and market equilibrium, used
relentlessly and unflinchingly." One commentary
characterizes the remark as making economics an approach rather than a subject
matter but with great specificity as to the "choice process and the type
of social interaction that [such] analysis involves." The same source
reviews a range of definitions included in principles of economics textbooks
and concludes that the lack of agreement need not affect the subject-matter
that the texts treat. Among economists more generally, it argues that a
particular definition presented may reflect the direction toward which the
author believes economics is evolving, or should evolve.
Opinion
Economics is the social science that studies the behavior of individuals, groups, and organizations (referred to economic actors, players, or agents), when they manage or use of scarce resources, which have alternative uses, to achieve the desired goal.
Much applied economics in public policy is concerned with
determining how the efficiency of an economy can be improved. Recognizing the
reality of scarcity and then figuring out how to organize society for the most
efficient use of resources has been described as the "essence of
economics", where the subject "makes its unique contribution."
source: http://en.wikipedia.org/wiki/Economics
