Economics

As a field of study, economics allows us to better understand economic systems and the human decision making behind them. Due to the existence of resource scarcity, economics is important because it deals with the study of how societies use/distribute scarce resources and how these processes can be accomplished more efficiently. For some economists, the ultimate goal of economic science is to improve the quality of life for people in their everyday lives, as better economic conditions means greater access to necessities like food, housing, and safe drinking water.

The 18th-century Scottish philosopher and economist Adam Smith is widely considered to be the father of contemporary economics. Smith’s book, An Inquiry into the Nature and Causes of the Wealth of Nations, is often cited as both his most notable contribution to the field of economics and one of the most influential books ever written. Some of his most famous ideas include the concept of gross domestic product (GDP) and the “invisible hand” behind the free market economy.

Macroeconomics and microeconomics are the two primary branches of economics. Macroeconomics focuses on the big picture side of economics, specifically the decisions made by countries and governments that affect an economy as a whole. Microeconomics, meanwhile, is the study of smaller scale decisions made by people and businesses that affect individual markets. Despite their differences, both branches are interdependent of each other and share many overlapping issues.

There are four economics concepts that are key to understanding economic decision making: scarcity, supply and demand, incentives, and costs and benefits. Scarcity refers to the fact that valued resources are limited in quantity. Supply and demand, meanwhile, is the relationship between the price of a good or service and the consumer interest in purchasing it, which, for example, can incentivize producers to increase the supply of goods when demand rises and consumers to limit their consumption of certain goods when supplies are scarce. Lastly, cost and benefit is the dynamic between how much a good or service costs to produce/purchase versus the benefit acquired from doing so.