What is economics

Economists employ many different methods of research from logical deduction to pure data mining. Economic theory often progresses through deductive processes, including mathematical logic, where the implications of specific human activities are considered in a "means-ends" framework.

This type of economics deduces, for example, that it is more efficient for individuals or companies to specialize in specific types of labor and then trade for their other needs or wants, rather than trying to produce everything they need or want on their own. It also demonstrates trade is most efficient when coordinated through a medium of exchange , or money.

Economic laws deduced in this way tend to be very general and not give specific results: they can say profits incentivize new competitors to enter a market, but not necessarily how many will do so. Still, they do provide key insights for understanding the behavior of financial markets , governments, economies—and human decisions behind these entities.

Other branches of economic thought emphasize empiricism, rather than formal logic—specifically, logical positivist methods, which attempt to use the procedural observations and falsifiable tests associated with the natural sciences. Some economists even use direct experimental methods in their research, with subjects asked to make simulated economic decisions in a controlled environment. Since true experiments may be difficult, impossible, or unethical to use in economics, empirical economists mostly rely on simplifying assumptions and retroactive data analysis.

However, some economists argue economics is not well suited to empirical testing, and that such methods often generate incorrect or inconsistent answers. Two of the most common in macroeconomics are monetarist and Keynesian. Monetarists are a branch of Keynesian economics that argue that stable monetary policy is the best course for managing the economy, and otherwise often have generally favorable views on free markets as the best way to allocate resources.

Economic indicators are reports that detail a country's economic performance in a specific area. These reports are usually published periodically by governmental agencies or private organizations, and they often have a considerable effect on stocks, fixed income , and forex markets when they are released.

They can also be very useful for investors to judge how economic conditions will move markets and to guide investment decisions. Below are some of the major U. It represents the total market value of all finished goods and services produced in a country in a given year or another period the Bureau of Economic Analysis issues a regular report during the latter part of each month.

This is because the final GDP figure is frequently considered a lagging indicator , meaning it can confirm a trend but it can't predict a trend. In comparison to the stock market, the GDP report is somewhat similar to the income statement a public company reports at year-end.

Reported by the Department of Commerce during the middle of each month, the retail sales report is very closely watched and measures the total receipts, or dollar value, of all merchandise sold in stores.

Because consumer spending represents more than two-thirds of GDP, this report is very useful to gauge the economy's general direction. Also, because the report's data is based on the previous month sales, it is a timely indicator. The content in the retail sales report can cause above normal volatility in the market, and information in the report can also be used to gauge inflationary pressures that affect Fed rates.

The industrial production report, released monthly by the Federal Reserve, reports on the changes in the production of factories, mines, and utilities in the U. One of the closely watched measures included in this report is the capacity utilization ratio , which estimates the portion of productive capacity that is being used rather than standing idle in the economy.

The Bureau of Labor Statistics BLS releases employment data in a report called the non-farm payrolls , on the first Friday of each month. Likewise, potential contractions may be imminent if significant decreases occur. While these are general trends, it is important to consider the current position of the economy.

For example, strong employment data could cause a currency to appreciate if the country has recently been through economic troubles because the growth could be a sign of economic health and recovery. Conversely, in an overheated economy, high employment can also lead to inflation, which in this situation could move the currency downward.

The Consumer Price Index CPI , also issued by the BLS, measures the level of retail price changes the costs that consumers pay and is the benchmark for measuring inflation. Using a basket that is representative of the goods and services in the economy, the CPI compares the price changes month after month and year after year. Greater-than-expected price increases are considered a sign of inflation, which will likely cause the underlying currency to depreciate. Societies have organized their resources in many different ways through history, deciding how to use available means to achieve individual and common ends.

In primitive agrarian societies, people tend to self-produce all of their needs and wants at the level of the household or tribe. Families and tribes would build their own dwellings, grow their own crops, hunt their own game, fashion their own clothes, bake their own bread, etc. This economic system is defined by very little division of labor and resulting low productivity , a high degree of vertical integration of production processes within the household or village for what goods are produced, and relationship based reciprocal exchange within and between families or tribes rather than market transactions.

In such a primitive society, the concepts of private property and decision-making over resources often apply at a more collective level of familial or tribal ownership of productive resources and wealth in common. Each individual market has its own unique characteristics, determined in part by the degree and nature of government regulation. Think of the Dublin taxi market, or the market for charter holidays, or the market for legal services. What determines prices in these markets?

Do these markets work efficiently? Is the nature of government intervention in these markets appropriate? These are the sorts of questions asked by microeconomists. The other main branch of economics is macroeconomics. Macroeconomics is concerned with the behaviour and functioning of the whole economy. Macroeconomists work with questions such as what determines the overall growth rate of an economy and what policies would be effective in trying a raise an economy's growth rate?

What determines the overall rate of price inflation in any economy and how might governments try to maintain price stability? Whatever the reason, if people specialize in the production of what they do best, they will be more productive than if they produce a combination of things, some of which they are good at and some of which they are not. Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality.

This pattern holds true for many workers, including assembly line laborers who build cars, stylists who cut hair, and doctors who perform heart surgery.

In fact, specialized workers often know their jobs well enough to suggest innovative ways to do their work faster and better. A similar pattern often operates within businesses. Third, specialization allows businesses to take advantage of economies of scale , which means that for many goods, as the level of production increases, the average cost of producing each individual unit declines. For example, if a factory produces only cars per year, each car will be quite expensive to make on average.

However, if a factory produces 50, cars each year, then it can set up an assembly line with huge machines and workers performing specialized tasks, and the average cost of production per car will be lower. The ultimate result of workers who can focus on their preferences and talents, learn to do their specialized jobs better, and work in larger organizations is that society as a whole can produce and consume far more than if each person tried to produce all of their own goods and services.

The division and specialization of labor has been a force against the problem of scarcity. Specialization only makes sense, though, if workers can use the pay they receive for doing their jobs to purchase the other goods and services that they need. In short, specialization requires trade. You do not have to know anything about electronics or sound systems to play music—you just buy an iPod or MP3 player, download the music and listen.

You do not have to know anything about artificial fibers or the construction of sewing machines if you need a jacket—you just buy the jacket and wear it. You do not need to know anything about internal combustion engines to operate a car—you just get in and drive. Instead of trying to acquire all the knowledge and skills involved in producing all of the goods and services that you wish to consume, the market allows you to learn a specialized set of skills and then use the pay you receive to buy the goods and services you need or want.

This is how our modern society has evolved into a strong economy. Economics is not primarily a collection of facts to be memorized, though there are plenty of important concepts to be learned.

Instead, economics is better thought of as a collection of questions to be answered or puzzles to be worked out. Most important, economics provides the tools to work out those puzzles. The study of economics does not dictate the answers, but it can illuminate the different choices. Economics seeks to solve the problem of scarcity, which is when human wants for goods and services exceed the available supply. A modern economy displays a division of labor, in which people earn income by specializing in what they produce and then use that income to purchase the products they need or want.

The division of labor allows individuals and firms to specialize and to produce more for several reasons: a It allows the agents to focus on areas of advantage due to natural factors and skill levels; b It encourages the agents to learn and invent; c It allows agents to take advantage of economies of scale. Division and specialization of labor only work when individuals can purchase what they do not produce in markets. Learning about economics helps you understand the major problems facing the world today, prepares you to be a good citizen, and helps you become a well-rounded thinker.

Bureau of Labor Statistics, U. Department of Labor. Williamson, Lisa. Accessed December 1, By extension of our basic definition, economics as applied to agricultural and environmental issues is concerned with the efficient allocation of natural resources to maximise the welfare of society.

There is an obvious need to understand the economics behind the decisions facing the individual farmer, firm or resource owner, but it is also important to have an appreciation of the bigger picture in terms of agriculture and the environment's impact on the domestic economy as a whole, as well as its impact in an international context.

The economics of the individual agent's decisions about resources is referred to as microeconomics , while macroeconomics studies the interactions in the economy as a whole. Our focus here is on microeconomic theory. Resources are finite, and people and governments must make choices.

By studying the way that people make choices, the better choices we make! Economics has quite an extensive role to play in a multitude of contexts, particularly in solving agricultural and environmental problems.

For example, it has much to contribute to improved policies for the efficient targeting of agricultural subsidies, the control of pollution and the depletion of natural resources.