Economics

Economics is a social science that studies how people make choices about producing, sharing, and using goods and services like food, toys, and technology. It looks at how individuals, businesses, and governments behave when they buy, sell, and use these things.

There are two main parts to economics. Microeconomics looks at small parts of the economy, like how families decide what to buy or how companies decide what to make. Macroeconomics looks at the whole picture, like how a country’s economy grows or shrinks over time.

Economics helps us understand many parts of daily life, from business decisions to government policies. It can even help explain topics like crime, education, and the environment by showing how people’s choices affect each other.

Definitions of economics

Main article: Definitions of economics

Economics used to be called "political economy," but today we call it "economics." This word comes from an old Greek word meaning "how to run a home." Over time, people have defined economics in different ways.

One famous definition comes from Adam Smith, who said economics is about understanding how nations become wealthy. Another definition by Jean-Baptiste Say says economics studies how things are made, shared, and used up.

Later, Lionel Robbins said economics looks at how people make choices when they don’t have enough of what they need. This means people must choose how to use their limited resources to get what they want. Some think this definition is too broad, but it helps us understand many parts of life, like even deciding whether to go to war, by looking at costs and benefits.

History of economic thought

Main articles: History of economic thought and History of macroeconomic thought

From antiquity through the physiocrats

Questions about how resources are shared appear in the writings of the Boeotian poet Hesiod. The Greek word oikos was used to describe managing a household, which included the landowner, his family, and his slaves. Later, Xenophon wrote about managing households in his book Oeconomicus, and Aristotle also wrote about economics in his work Nicomachean Ethics.

Two groups, called "mercantilists" and "physiocrats," influenced economic ideas. Mercantilists believed a country's wealth came from having lots of gold and silver. They thought countries should sell goods abroad and only bring in gold and silver. Physiocrats, French thinkers, believed only farming created true wealth. They wanted less government control over the economy.

Adam Smith wrote about economics in the 1700s. He criticized mercantilists but thought physiocrats were close to correct.

Classical political economy

Main article: Classical economics

Adam Smith wrote The Wealth of Nations in 1776. He said land, workers, and tools were key to creating wealth. Smith talked about how dividing tasks among workers could make them more productive.

Thomas Robert Malthus worried that populations would grow faster than food could be produced, leading to poor living conditions. David Ricardo studied how income was shared among landowners, workers, and business owners. John Stuart Mill thought governments should help make income more fair.

Marxian economics

Main article: Marxian economics

Karl Marx wrote about how workers were treated unfairly. He believed the value of goods came from the work put into them. His ideas were developed by other economists like Karl Kautsky, Rudolf Hilferding, Vladimir Lenin, and Rosa Luxemburg.

Neoclassical economics

Main article: Neoclassical economics

Later economists like Alfred Marshall studied how people make choices with limited resources. They looked at how prices and costs affect decisions. Neoclassical economics became a main way of thinking about economics.

Keynesian economics

Main article: Keynesian economics

John Maynard Keynes wrote about why some countries might have high unemployment even when prices change. His ideas were used to help manage economies, especially after big economic problems.

Post-WWII economics

Immediately after World War II, Keynesian economics was the dominant economic view of the United States establishment and its allies, and Marxian economics was the dominant economic view of the Soviet Union nomenklatura and its allies.

Monetarism

Main article: Monetarism

Milton Friedman led ideas about how controlling money could help manage economies. His views were popular in the 1970s and 1980s.

New classical economics

Main article: New classical macroeconomics

Economists like Robert Lucas suggested that people make smart choices based on expectations, which changed how economists thought about policy.

New Keynesians

Main article: New Keynesian economics

Economists like George Akerlof and Janet Yellen combined ideas from Keynes and others, focusing on why markets don’t always work perfectly.

New neoclassical synthesis

Main article: New neoclassical synthesis

By the 2000s, economists blended different ideas into a new approach. This helped design better policies for managing money.

After the 2008 financial crisis

After the 2008 financial crisis, economists focused more on how financial problems can hurt the whole economy. They also started looking more at how people’s behaviour affects economic choices.

Other schools and approaches

Main article: Schools of economic thought

Other ways of thinking about economics include the Austrian School, which focuses on personal choice and free markets. Feminist economics looks at how gender affects economies and aims to make economic research fair to all genders.

Methodology

Main articles: Microeconomics, Macroeconomics, and Mathematical economics

"Economic theory" redirects here. For the publication, see Economic Theory (journal).

Economic theory uses simple ideas to help explain how money and resources are used. It often looks at how people make choices and how markets work. Some theories focus on small parts of the economy, like how individuals buy and sell, while others look at the whole economy, like how jobs and prices change over time.

Economic ideas are tested using real-world data and experiments. Scientists study patterns in the data to see if their ideas match what really happens. Sometimes they use experiments to test theories more directly. This helps make economics more like other sciences, where experiments are common.

Microeconomics

Main articles: Microeconomics and Market (economics)

Microeconomics looks at how people and businesses make choices and how they trade with each other. It studies how prices are set and how goods and services are bought and sold. This includes how individuals, companies, and the government interact in markets.

In a market, there are many different types of setups. Some markets have many sellers and buyers, where no single person can change the price. In other markets, one or a few sellers might control the price. These different setups can affect how goods are made, sold, and priced.

Microeconomics also looks at how resources are used to make products. It studies how much of each product is made and how that affects the prices and choices people make. For example, if there are limited resources, making more of one product might mean making less of another.

The study of microeconomics helps us understand how individuals and businesses make decisions, how they trade, and how prices are determined in different situations.

Macroeconomics

Main article: Macroeconomics

Macroeconomics is a part of economics that looks at the whole economy. It tries to explain big picture things like how much money a country makes, how many people are jobs, and why prices go up or down. It studies things like how much money the government spends and how banks control money.

Macroeconomics also looks at how countries grow over time. This includes things like how new technology and more workers can help a country make more stuff. It also studies why some countries grow faster than others.

Growth

Main article: Economic growth

Growth economics looks at why some countries get richer faster than others. It studies things like how much money people save and invest, how many babies are born, and how technology improves. These factors help explain why some countries are richer than others.

Business cycle

Main article: Business cycle

See also: Circular flow of income, Aggregate supply, Aggregate demand, and Unemployment

During tough economic times, like the Great Depression in the 1930s, people noticed that sometimes there aren’t enough jobs. A famous economist named John Maynard Keynes wrote a book about this. He thought that sometimes the government needs to step in to help create jobs and keep the economy going.

Unemployment

Main article: Unemployment

Unemployment is when people want jobs but can’t find them. There are different reasons why this happens. Sometimes jobs are hard to find because workers need new skills. Other times, it’s because the economy isn’t growing very fast.

Money and monetary policy

Main article: Monetary policy

See also: Monetary economics and History of money

Money makes it easier to trade things. Instead of trading one item for another, people can use money. Banks and governments use monetary policy to control things like how much money there is and how fast prices change. They do this by changing interest rates and other tools.

Fiscal policy

Main articles: Fiscal policy, Government spending, and Tax

Governments can also help the economy by spending money and changing taxes. For example, they might build new roads or cut taxes to give people more money to spend. This can help when the economy is struggling.

Inequality

Main article: Economic inequality

Economic inequality looks at how money and wealth are shared among people. Some people have a lot, while others have very little. This can affect things like how stable a country is and how fast it grows. Governments use taxes and spending to try to make things more fair.

Other branches of economics

Public economics

Main article: Public economics

Public economics is a part of economics that looks at how the government works. It studies topics like who pays taxes, how government programs affect the economy, and how spending and taxes change how money is shared among people.

International economics

Main article: International economics

International economics looks at how countries trade with each other. It studies why goods and services move between countries and how this trade helps everyone. It also looks at how changes in rules about trading, like taxes on imports, can affect the economy. International finance studies how money moves between countries and how this affects exchange rates.

Labour economics

Main article: Labour economics

Labour economics studies how jobs and workers interact with employers. It looks at how many people want jobs, how many jobs are available, and what people earn. In economics, labour is the work that people do, which is different from things like land and machines.

Development economics

Main article: Development economics

Development economics studies how countries that don’t have a lot of money can grow and improve. It looks at how changes in the economy, like new jobs or better schools, can help reduce poverty and make life better for everyone.

Related subjects

Main articles: Law and economics, Natural resource economics, Philosophy and economics, and Political economy

Economics is one of several social sciences. It connects with many other areas, such as economic geography, economic history, public choice, energy economics, cultural economics, family economics and institutional economics.

Law and economics looks at how laws work using ideas from economics. It helps us understand how laws affect people and businesses, and what laws might work best.

Political economy studies how politics, economics, and law all work together. It looks at how governments make decisions that affect the economy, like rules about big companies or shared resources.

Energy economics is about how we get and use energy, like electricity and fuel. It helps us understand the balance between needing energy and keeping our planet healthy.

Economic sociology is the study of how money and work affect society and culture. It looks at how people’s beliefs and ways of living shape how economies work.

Profession

Main article: Economist

Economics has grown a lot since around 1900, especially with more schools offering degrees in it. You can study economics at many universities and colleges, whether you're interested in liberal arts, business, or just want to learn more about it. There are even special degrees like a Bachelor of Economics or a Master of Economics.

Economists work in many places. Some help companies make better decisions, especially in banking and finance. Others work for governments, like in the national treasury, central bank, or National Bureau of Statistics.

Every year, economists can win prizes for their important work. The biggest one is the Nobel Memorial Prize in Economic Sciences, though it's not actually a Nobel Prize.

Economists often use math. They learn tools like calculus, linear algebra, statistics, game theory, and computer science to understand how money and resources work.

Women in economics

Some famous women have made big impacts in economics. Harriet Martineau helped explain economic ideas to many people. Mary Paley Marshall was the first woman to teach economics at a British university. Joan Robinson was known for her work in a special area of economics. Anna Schwartz wrote an important book about money in the United States with Milton Friedman.

Three women have won the Nobel Prize in Economics: Elinor Ostrom in 2009, Esther Duflo in 2019, and Claudia Goldin in 2023. Women are still not as common in economics as men, but more are joining the field every year.