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What is Economics?

A monument honoring Adam Smith, a famous economist.
Economists attempt to understand the economy and the way it responds to various influences.
The Wealth of Nations was published the same year as the signing of the Declaration of Independence.
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  • Written By: Michael Anissimov
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 December 2014
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Economics is the study of the production, distribution, and consumption of goods and services — the economy. Economists attempt to understand the economy and the way it responds to various influences, such as changes in federal interest rates. Economics is considered a social science.

Modern economics began in 1776, with the publication of Adam Smith's Wealth of Nations. This was the first comprehensive defense of the free market, and continues to be an influential work to this day. Central to the work was the concept of the "invisible hand", the idea that the market, while appearing chaotic, is actually guided to produce the right amount and variety of goods and services. If there are insufficient goods, there will be great economic incentives to produce more; if there are surplus goods, there will be an economic incentive to produce less or different types of goods. Smith's work was so influential that previous tentative schools of economics were abandoned after its publication.

Economics is a field that can be broken down into a variety of different schools, divisions, and methods of analysis, although the primary two methods are macroeconomics — the study of economies in aggregate — and microeconomics — the study and modeling of individual agents in an economy. Economists have worked out theories of markets which approximate real-world trends and behaviors.

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Most economists advocate a laissez-faire economy, meaning an economy with minimal government intervention. They point to the collapse of the Soviet Union as an example of a failed economy with too much central control, and the success of the United States as a model of a laissez-faire economy. Unfortunately for economists, polls of laypeople frequently shows they approve of limited government interventions in the economy.

Another basic tenet of economic theory is that, through self-interest among large numbers of agents, broader social interests may be served in the long run. When people focus on being as productive and possible and providing goods and services in sufficient demand, they do benefit, but so do others who utilize those services, and the public sector, which takes money off the top through taxes.

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SZapper
Post 11

I know economics is supposed to be the study of goods and services, but economics today seems to have evolved a bit from that. There was a very popular book that came out in 2005 that was written by an economist, but wasn't strictly about the economy.

The book was called Freakonomics, and the author was an economist who used the principles behind economics to study things like social issues. It was a very interesting read, and I think it expanded a lot of people's ideas about what economics actually is.

sunnySkys
Post 10

@ceilingcat - It is nice to take certain subjects in high school, because then when you get to college you have some idea of what you're getting yourself into! I never took any classes in the economics department when I was in college, but a few of my friends did, and they were pretty difficult.

Anyway, although I never took economics, that doesn't stop me from having some ideas on the subject. I will personally never understand why so many people are so attached to the idea of a laissez-faire economy.

You need to have at least some government interference in the business world, or else workers will be exploited and monopolies will form! I think there definitely needs to be some government oversight of the economy.

ceilingcat
Post 9

I took an introduction to economics class my last year of high school. I thought it was going to be easy, but it was actually rather difficult. The way this article explains the general idea of economics is very easy to understand, but a semester class on economics goes into much more detail.

I'm glad I realized economics wasn't for me in high school, because in college I had the option to take economics online to fulfill a certain general education requirement. However, based on my experiences in high school, I decided to pick something else!

anon161503
Post 8

please can anyone help me to get the characteristics of the labor market?

anon155579
Post 7

Every responsible person is an economist.

anon131340
Post 6

well if saying that every woman on planet earth is a born economist, i am pretty sure because they did the hardest labor that men can do so certainly i agree with that.

anon83695
Post 3

Every unemployed person in this world is an economist!

Every politician in this world is an economist by accident.

Every woman on planet earth is a born economists.

anon9047
Post 1

What is the role of the external sector in an economy?

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