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| The supply and
demand model describes how prices vary as a
result of a balance between product availability
and demand. |
Economics
Economics is the social science which studies economic
activity: how people make choices to get what they want.
It has been defined as "the study of scarcity and
choice" and is basically about individual choice. It
also studies what affects the production, distribution
and consumption of goods and services in an economy.
Investment and income relate to economics. The models
used in economics today were mostly started in the 19th
century. People took ideas from the field of political
economy because they wanted to use an empirical approach
similar to the one used in the natural sciences.
Subjects and objects in
economics
The subjects (actors) in economic study are households,
business companies, the government (the state), and
foreign countries. Households offer their "factors of
production" to companies. This includes work, land,
capital (machines, buildings) and information. They get
income which they use to buy or 'consume' goods.
Business companies produce and sell goods and services
and buy factors of production from households and from
other companies.
The state or public sector includes institutions and
organisations. The state takes some of the earnings from
the business companies and households, and uses it to
pay for "public goods" like streets or education, to be
available for everyone. The last subject is foreign
countries. This includes all households, business
companies and state institutions, which are not based in
one's own country. They demand and supply goods from
abroad.
The objects (things acted upon) in economic study are
consumer goods, capital goods, and factors of
production. Consumer goods are classified as "usage
goods" (for example, gasoline or toilet paper), as
"purpose goods" (for example, a house or bicycle), and
as "services" (for example, the work of a doctor or
cleaning lady). Capital goods are goods which are
necessary for producing other goods. Examples of these
are buildings, equipment, and machines. Factors of
production are work, ground, capital, information, and
environment. |
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General economic rules |
- All people have to decide between
their options.
- The cost of goods is what a person
gives up for the goods.
- When a person gives up something
(like money) to get a good, they also give up other
things that they could have gotten instead. This means
that the true cost of something is what you give up to
get it. This includes money, and the economic benefits
("utility") that you didn't get because you can no
longer buy something else. This is called opportunity
cost.
- People react to encouragements
("incentives"). Making an option more attractive will
make more people choose it.
- Trade can make everyone better off.
- Markets are usually good for the
organisation of economic life. In the free market, goods
will be shared by people and companies making small
decisions. The “invisible hand” of the market (Adam
Smith) states that if everyone tries to get what they
want, everyone will be as well-off as they could
possibly be.
- Sometimes prices do not fully show
the cost or benefit to society. For example, air
pollution is bad for society, and education is good for
society. The government can put a tax (or do something
to reduce sales) on items that are bad for society. It
can also support (like giving money for) items that are
good for society.
- The living standard of a country
depends on the skills to produce services and goods.
Productivity is the amount of the produced goods divided
by total working hours.
- When there is an increase in the
total money supply, or when the cost to produce things
rises, prices go up. This is called inflation.
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History
Economists are strongly influenced by the times they
live in. For example, Karl Marx lived in a time where
workers' conditions were very poor, and John Maynard
Keynes lived through the Great Depression of the 1930s.
Today's economists can look back and understand why they
made their judgments, and try to make better ones.
Branches of economics
The two main branches of economics are microeconomics
and macroeconomics.
Macroeconomics is about the economy in general. For
example, if a country's wealth goes up or if millions of
people become unemployed, those are things that
macroeconomists study. Microeconomics is about smaller
and more specific things such as how families and
households spend their money or how a business operates. |
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Famous economists
Famous economists in history include: |
- Adam Smith (considered to be the
father of economics; he supported free markets).
- Thomas Malthus (he wrote about
how a high population can affect the economy badly).
- Karl Marx (he wrote a book
called The Communist Manifesto; he supported
communism).
- John Maynard Keynes (he created
a popular economic theory called Keynesian
economics).
- Milton Friedman (he wrote a lot
about monetarism and the money supply).
|
 Kiddle: Economics
Wikipedia: Economics |
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