What is Economics
What is Economics
Keynesian Cross

Economics is a new science and according to Heilbroner (1999) the first economist was Adam Smith who lived in the late eighteenth century. Economics is also called the “dismal” science, a phrase coined by Thomas Carlyle in reaction to the pessimistic predictions of another economist, Malthus (Dixon, n.d.). The phrase is also appropriate due to most economists being absolute pragmatists and never promising anything except every advantage having an associated disadvantage.

Economics Defined

Economics is formally defined as “the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society” (Colander, 2004, p. 4). With this broad definition economists focus on the coordination of wants and desires, thus differentiating the science of economics from earlier, pre-economic science eras.

The addition of markets, hence capitalism, spurred the creation of the science of economics. What changed with markets? Primarily the way survival was assured. Heilbroner (1999) points out that until self-gain became a motivating factor between buyers and sellers, tradition and authority assured survival.

Traditions were passed down from generation to generation and authoritarian rule dictated what needed to be created, grown, or converted. Not until capitalism freed people from these traditions and central authorities no longer dictated what would and would not be sold or bartered was there any need for the science of economics. The advent of the market system, and its subsequent reliance on profit or gain, necessitated the study of economics, which was also called political economy.

Microeconomics Defined

Microeconomics can be thought of as “the study of individual choice, and how that choice is influenced by economic forces” (Colander, 2004, p. 14). Microeconomics differs from macroeconomics due to the scope of macroeconomics. Macroeconomics is the study of entire economic systems, what most people would call economics. Big names like Adam Smith, Karl Marx, and John Maynard Keynes come to mind. Microeconomics on the other hand is the study of choice, specifically the choices individuals and businesses make when allocating resources, generally money.

Microeconomics includes principles such as opportunity cost, market failures, price theory and the law of supply and demand. Microeconomics can be broken down into several disciplines including, financial economics, political economy, and labor economics. Microeconomics is intertwined with macroeconomics, and can not be separated from it. The economy is based on individual decisions, but those decisions are based on the economy or perception of it (Colander, 2004, chap. 1).

References

Colander, D. C. (2004). Economics (5th ed.). Boston: McGraw-Hill/Irwin.

Dixon, R. (n.d.). Thomas Carlyle attacking the ‘political economists’. Retrieved June 12, 2008, from http://www.economics.unimelb.edu.au/TLdevelopment/econochat/Dixonecon00.html

Heilbroner, R. (1999). The worldly philosophers : the lives, times, and ideas of the great economic thinkers (7th ed.). New York: Simon & Schuster.

Colander, D. C. (2004). Economics (5th ed.). Boston: McGraw-Hill/Irwin.

Dixon, R. (n.d.). Thomas Carlyle attacking the ‘political economists’. Retrieved June 12, 2008, from http://www.economics.unimelb.edu.au/TLdevelopment/econochat/Dixonecon00.html

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