ECON: What is Economics?

Last post, we discussed why Economics is such a pivotal tool to remediate the inequalities in our world. Additionally, I started to explain how economics works, my main purpose in this blog, then we began to talk a little about statistics and econometrics working together with public policy and human decisions. However, I did not explain what is economics, so I am going to discuss this topic now.

First of all, we have the stereotype that economists only are concerned about money, financial investments, and trade. But the primary meaning of the word 'Economics', which comes from the Greek word 'Oikonomia’, is household management/administration. Therefore, this stereotype is inaccurate because the Economic Science is more than monetary issues, it studied from daily decisions to government policies.

And what is the definition of economics by the renowned economists?

Adam Smith (one of my favorite economists!), the Scottish liberal economist, revolutionize the perspective about the economic capital. In his book 'The Wealth of Nations', he argued that wealth does not only correspond to the possession of agriculture or precious metal, opposing the mercantilism (previous economic theorem, that supported the metallism and protectionism. We are going deeper later in this topic). So for him, wealth is achieved by productive work, also Smith defended free trade as an attempt to improve the efficiency of the production (due to the liberalism we see now numerous exchanges that tend to benefit everyone).

In the last century, the English economist Lionel Robbins elaborated on the most accepted definition that is: 'Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.'

What do we conclude about these definitions by economists? Well, the definitions and theories are flexible as our world perspective changes a lot. On the other hand, we can incorporate Smith's theory with Robbins's and state that Economics is the study of human decisions since the Earth resources are limited therefore we need a more efficient production.

Before I proceed to the next topic in this article, I want to make a quick acknowledgment about the confusion between Economics and Economy. Economy is the set of human activities that aim at the production and the distribution of goods and services. So Economics is the science that studies the performance of the economy.

The branches of Economics Science: Macro and Micro

Macroeconomics is the Economic field that analyzes the economy on a national and international level. So it involves millions, politics, and government, however, we can have weak conclusions with mathematics and statistics, as the economy is very vulnerable. This branch is concerned more about Gross Domestic Product (GDP), recessions/booms, foreign trade, governmental policy (monetary, fiscal and commercial), unemployment, and inflation.

Microeconomics is the Economic field that analyzes the economy on an individual and firm level. So it involves natural resources, decisions, and allocations, fortunately, we can have strong predicts with mathematics and statistic. This branch is concerned more about the price, demand, supply, financial decisions, and production of goods.

Although these categories seem different, they are complementary. For instance, when we investigate the GDP in an international context (macroeconomics), there is sometimes the need to comprehend the prize or demand in a specific region (microeconomics). And one of the tools to analyze prices is the law of demand and supply that we are going to talk in the next article.

So thank you for reading this article so far! Do not forget to subscribe to our blog and follow us on Instagram (@meep.blog). 'See you' next week!

Luigi

(Image: https://i.pinimg.com/originals/f1/d1/2d/f1d12db5e6003d3157932cefb7fb7c11.png)