Economics Defined

Economics, according to the Economist’s Dictionary of Economics is defined as the study of the production, distribution and consumption of wealth in human society.

Economics is usually looked at through the eyes of scarcity and choice. It is often said that the central purpose of economic activity is the production of goods and services to satisfy our ever-changing needs and wants. Bear in mind that the world’s resources are not limitless. In light of this scarcity of resources, and choices that governments, businesses and societies have to make, these are the problems and decisions that the field Economics seeks to tackle:

  • Opportunity Cost: the cost of passing up the next best choice when making a decision.
  • Rationality: a thought process based on sane logic and reasoning.
  • Resource allocation: The process of allocating resources in an economy, or between economies.
  • Scarcity: Not having sufficient resources to produce enough to fulfill unlimited wants.
  • Scarce resources: Goods and services which are scarce because of the limited availability of the factors of production.
  • Factors of production: The resources of land, labour, capital and enterprise.
  • Specialisation: the separation of tasks within a system, could be an individual, company or country who specialises.
  • Division of Labour: is a system whereby workers concentrate on performing a few tasks and then exchange their production for other goods and services.

Another aspect of economy, entwined with the above is its interest in the behaviour and interactions of individuals, governments and societies. For example: How do individuals react to the increase in price of burgers? How do individuals and firms interact in a market? What effects do monetary and fiscal policies have in an economy?

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