About Economics

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