Business, Legal & Accounting Glossary
the branch of social science that deals with the production and distribution and consumption of goods and services and their management.
social sciences The study of resource allocation, distribution and consumption; of capital and investment; and of management of the factors of production.
Economics is the study of the production, availability, buying, selling, and trading of goods and services.
Economics explores how the forces of supply and demand distribute scarce resources.
Economics can largely be divided between microeconomics and macroeconomics.
The branch of economics studies how the limited amount of resources is distributed amongst the population of societies, cities, regions nations and the globe. From household goods, services provided in a market or stockroom, food and clothing, vacation packages and luxuries, diamonds and gold, labor and employment and even the very action of getting out of bed each morning, economics is the study of how these goods and services flow throughout markets.
A market is a place where these goods and services are exchanged. In early marketplaces, bartering was the means of exchange. This is where two individuals would trade goods or services directly. If a farmer needed a bag of hay he could give another farmer a bag of horseshoes in exchange. While convenient for small exchanges, this method of exchange proved cumbersome for larger exchanges.
As a substitute for bartering, money as a medium of exchange was established. Assigned set values, coins and bills were easier to carry and transport, it could be exchanged for goods of equal value and they held their value making transactions easier and cheaper.
Regardless of how an exchange of goods and services is done, they only occur because both individuals are getting something they desire at a lower cost than what they are giving up. A fundamental assumption of economics is that all actions have benefits that outweigh their costs, or B > C. After all, why would a person give $100 for a gumball if it only provides them with near $0.30 of value, or why would a salesman sell a car for $5 when it cost them $10,000 to receive it into their inventory? Logically and in practice this does not happen. Even in the event of sales, the idea is that the company will attract customers in which will lead to additional items being sold. Therefore benefits are greater than the costs.
This concept applies to everything from the purchase of goods and services in a market, to setting wages for employment and even to whether you should wake up at 7:00 A.m. or 11:00 A.M. When you decide to sleep extra hours or not, you are weighing the outcomes and the benefits and costs.
Costs are not always monetary costs either. For example: If you have a test in the morning, but a friend invites you out for a night of fun, there is more than the cost of spending money. If you choose to go out, you give up the study time, the results of a higher grade, and the pressure of having to do better on your next test. if you choose to study instead, you give up the cost of what enjoyment you would have gained. These costs are called opportunity costs and must be considered in all economic decisions.
The two main branches of the study are macroeconomics and microeconomics or macro-microeconomics. Microeconomics is the branch that deals with the decision-making of individuals and firms. Common topics covered are how to calculate demand and supply functions. Setting these equations equal to one another brings allows the equilibrium level, or where supply equals demand to be calculated. It is when equilibrium is obtained that producer surplus + consumer surplus is greatest and therefore total utility or welfare is highest. The same can be used to calculate profit-maximizing firm quantities and prices. In addition to calculating the profit-maximizing firm prices, the demand elasticity formula can be used to determine the effect of prices on quantity demand. On the macroeconomics side, the economy as a whole is studied. Common topics of this nature include GDP, using the demand elasticity formula to calculate the effect of currency and prices, inflation, the CPI, and even regional and urban economics.
The study of economics requires a knowledge or background in calculus and statistics, with econometrics becoming a large topic in the field. Using regression analysis and typically computer software, models are derived to show relations between variables, forecasts are made for future predictions and hypotheses can be tested. The entire study of economics is based on the neoclassical mathematical model. All calculations come from deriving functions and solving for variables. There is a common misconception that economics is a debatable topic when in reality it is purely mathematical and not open for debate. 2+2 always = 4 regardless of one’s opinions or political affiliation.
Fields in economics include:
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This glossary post was last updated: 4th August, 2021 | 4 Views.