What is Economics?

Scarcity being a major factor across the board, be it with individuals or nations, it is imperative for all parties to embark on the efficient allocation of resources for the achievement of set objectives. Some of these decisions may involve choosing specific goods and services and forgoing others. These decisions also form the subject matter of economics.

There are two common schools of economic thought namely:

Classical - This school of thought ascribes to the ideals of a free market policy whereby all players and forces in the market are left to interact and allocate resources within themselves. Government intervention is limited and is said to be like that of a referee. Keynesian - This school of thought acknowledges that at times the market forces are insufficient to allocate resources efficiently. It also acknowledges that markets fail. Thus, it remedies the intervention of government to correct market failure and to allocate resources efficiently.

Assumptions Made in Economics

In economics, there will always be assumptions made. One of the assumptions made is that individuals will always seek to satisfy their self-interest at any given time. Another assumption is that individuals are assumed to be rational as far as decision making is concerned. Another tenet of economics is incentives. Incentives are certain elements that will motivate individuals to behave in a certain way. They are motivators of action. For example, a local government may want to stimulate the economic capacity of a certain region by say, giving free land for investment in that region in order to motivate more investors to place their investments there. Thus, the local authority has given an incentive to the investors who on the other hand can be said to be acting out of incentive. When talking of firms and industries, we can say that firms may be motivated to enter a certain market or industry with the promise of high returns on their investment. Therefore, we can say that their main incentive is high profits. Otherwise, they would not enter the market. Again, we can consider government action such as tax reductions or zero rating some important raw materials. By all means, this would motivate firms to invest and engage in the trade of the respective commodities in response to this tax incentive.

Individuals and Nations

The scope of economics, as mentioned earlier, includes both individuals and nations as a whole. The intricate study of how people make decisions and choices is referred to as microeconomics. It looks at the behavior of individuals and firms present in the economy and the factors that influence their decisions. It is here where notions of production, consumption, demand, supply, price, and elasticity are analyzed. On the other hand, the study of how nations, states, governments, and industries make decisions that affect the greater economy and the entire business cycle in the economy is closely analyzed in macroeconomics. Thus, in macroeconomics, public policy comes into play in a bid to explain the action or inaction of the government in relation to an individual public problem. In addition, the narrative will go further to include the value of subsidies in certain sectors of the economy, poverty reduction, price control, regulation, and job creation. Both macro and microeconomics are essential to the process of decision-making especially with regard to resource allocation. Economics as a discipline of study borrows significantly from other disciplines. For example sociology, psychology, history, and law. Since it’s concerned with assumptions, predictions, and individual behavior, it inevitably has to borrow ideals from these disciplines. In the case of history, we can say it looks at past experiences and relates as to how they may have a bearing on the present and future. When we consider psychology, it largely uses ideals from the discipline especially in seeking to understand human behavior in certain conditions, human predispositions, and inclinations.This is useful in making assumptions and making predictions which are tenets of economics. Law, on the other hand, may provide a legal aspect to economics. It outlines the rules, regulations, and procedures in which economic decisions are made. The aspect of public policy and the role of government in the economy comes into play.