According to the Oxford English dictionary, economics is “the branch of knowledge concerned with the production, consumption, and transfer of wealth”. However, the definition of economics is actually more broad. Economics can be defined in different ways: it’s the study of scarcity, decision-making or how people choose to use resources.
Because a lot of what you hear about economics in the news revolves around topics such as banking, recessions, wealth, housing and finance, there is a misconception that economics is all about money. The truth is, economics is the science of decision making, and it can be applied to many aspects of our lives in order to explain the workings of the world around us. Furthermore, economics helps us to analyse historical trends and make predictions for the future. Moreover, economics borrows from other social sciences, like sociology, law and even criminology, to explain the why and how behind a person’s actions.
One of the central tenets of economics is that people respond to incentives. Economists realise that incentives are key for people to make decisions. For instance, parents will look to buy a house near a good school district if they want their children to receive a good education. Also, if a large industrial site is going to be set up in a local town then workers from all over the country may be tempted to move to this local town if their is a good chance for them to find a job there. Alternatively, consider the effect that higher taxes have on people; a higher tax rate may incentivise high income earners to dodge taxes by hiding some of their money.
As you may be aware, economics is split into micro and macro. Micro essentially analyses the individual parts which make up the economy. This focuses on the small scale, the actions of individuals and industries within the economy. For example, micro studies the interaction between the buyer and seller, how consumers and producers respond to price changes and how this impacts demand and supply.
On the other hand, macro looks at the economy as a whole and analyses the output of entire countries, international trade and how resources are allocated to maximise growth for future generations. Macro investigates, for instance, how and why recessions occur, how oil prices will affect the economy and the affects of immigration on employment.
One last thing you should know about economics, there is always a counter-argument. Economists are famous for never making a clear decision and sitting on the fence. There’s a joke about the US President Harry Truman, he is claimed to have said: “Give me a one handed economist! All my economists say, ‘on the one hand … on the other.”