What is Economics in Simple Words? What is Economics?

We can describe economics in one word. That word is scarcity. Scarcity and economics go hand in hand. Economics is the use of scarce resources in the most efficient way. Limited resources need to be used in a way that maximizes the utility of those finite resources.

People in society have infinite desires, and everyone wants to have unlimited money to buy everything they desire with. Those infinite desires can be narrowed down to the need for infinite happiness. Infinite desire could be described as an infinite desire for happiness.

So, if we were to look at economics from that point of view, economics is, in fact, maximizing happiness from scarce resources. Unfortunately, nothing is infinite, which means we need to use the limited resources we have to get as much happiness out of those resources.

There are three types of resources that economists rely on to make an objective analysis of an economy.

  1. Natural resources like coal, gold, water, trees and what they can be use to make things with
  2. Human resources which are the people who work within an economy, their efficiency, education level etc
  3. Capital resources which are buildings, machinery, tools, etc that are needed by the human capital to make things with

Here are a few other articles on economic topics you might like to have a look at:

Opportunity Cost

In my opinion, this is a valuable aspect of economics. For instance, you have decided to read this blog post on economics. What other things could you be doing with your time? This is an opportunity cost that you chose to make for yourself and every person on planet Earth is constantly making decisions, whether they know it or not. What you are doing today or right now, could be spent doing something else and that is an opportunity you are missing out on.

What is Economics Not a Study Of?

Economics is not the study of money and how to get rich quickly. Oh well, maybe sometimes you will get a few clues on how to get rich, but this is not the main goal of studying economics. Economics is not the study of the stock market, nor is it about making predictions on what is going to happen in the future. Only the elite, best economists make bold predictions about the economy and we all know how unreliable their predictions can be.

What is an Economy?

When we calculate all the resources within a country or society, we are calculating the size of limited resources within an economy.

This is what an economist does, and an economist looks at all the scarce resources in an economy to make recommendations on where those scarce resources could be allocated.

Microeconomics

microeconomics is the study of what individuals do with their money. What do small businesses and families spend their money on and how that will affect their towns and cities. Microeconomics is the study of small markets, within the greater economy. This study is designed to make a detailed analysis of small markets, in order to make projections as to what is likely to happen one quarter to a year in the future.

Macroeconomics

Macroeconomics is the study of the entire countries economy and all of the larger forces behind it. Macroeconomic projections on the future can affect all of the smaller markets, which makes macro far more important than knowing whether the local small business is doing well or not. The macro will always be a great way to understand how smaller markets will be affected in the future.

Positive Economics

Positive economics is an objective analysis of what resources are objectively there within an economy. Positive economics has no value judgments contained within. This means there are no feelings involved, no judgments placed on what people do with their money.

Positive economics asks what are people doing with their money, what are they spending it on and why do they spend it on these particular resources.

Normative Economics

Normative economics is when people suggest things should be better, for instance, there should be more resources here or there. This is a value judgment.

Normative economics suggests a value judgment on what people do spend their money on, and whether they should or not. There is a feeling or value placed on what people spend their money on. This is more common in top-down, authoritarian states who like to place judgment on their people and use those value judgments to tell them what they should and should not spend their money on.

What Are The Types Of Economic Systems?

  • Capitalism
  • Socialism
  • Communism
  • Feudalism
  • Primitivism