Definition of Economics

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Economics is a social science that studies the way in which people, organizations and countries assign resources. Its objective is to study the relationships between production, distribution, exchange and consumption of goods, services and ideas.

The main objective of economics is to enhance the well being of people, but this does not necessarily mean to grant them the greatest amount of consumer goods.

Different perspectives and branches of Economics

In our daily lives, we face innumerable economic decisions, such as choosing what to buy with available money or what to do during our free time. These topics, which are related to the decisions of individual agents (individuals, families, businesses), are the object of study in an area of economics called microeconomics.

Another area of economics is macroeconomics, which studies the relationship between economic aggregates. Economic aggregates are elements that are made up of the sum of other variables. For instance, the Gross Domestic Product (GDP) is the sum of everything that is produced by each individual and organization within a country. The consumer price index is made up of the average price of numerous products. The aggregate investment is the sum of the expenditures in investment of all businesses and families of a country, etc.

Economics, in addition to the two perspectives already covered (macroeconomics and microeconomics), has many other branches, each one specializing in different objects of study. Thus, we have labor economics, which studies the labor market; public finances, which is dedicated to the study of the income and expenditures of the government; international economics, which studies the flow of resources between countries, etc.

The studies conducted by each of these sub-disciplines can take elements from both macroeconomics and microeconomics as well as from other social sciences such as history, psychology, etc., and from exact sciences such as logic and mathematics.

Economic Schools

The concept of economic schools refers to a grouping of economic ideas or concepts which have certain common characteristics that differentiate them from other economic schools. Usually, each one of these schools has different ideas about the behavior of individuals, businesses, or aggregates. This leads them to formulate different recommendations on economic policy. For instance, monetarists centered their attention on the analysis of monetary aggregates, stating that the amount of money available in an economy is the main determinant for inflation, demand, employment, and production. On the other hand, Keynesians paid more attention to the use of public spending and therefore have different recommendations for similar situations. There are many economic schools, among which are the following:

  • Mercantilism
  • Physiocrats
  • Marxist School
  • Marginalist School
  • Austrian School
  • Classical School
  • Keynesian School
  • Neo-Keynesian School
  • Monetarist School
  • Structuralist School
  • Neo-classical School
  • Evolutionist School
  • Others

Economic System

The concept of economy can also make reference to a specific economic system; that is to say the description of the economy of a specific country or region, or even of the entire world. Depending on its main objective, this description may provide detail on several aspects. Commonly, we encounter macroeconomic data such as the GDP, the inflation rate, or the unemployment rate. An example of the way in which this economy concept is used can be exemplified in the statement “The economy of Spain is currently in a recession”. Clearly, this sentence does not refer to economics as a science, but to the economy of Spain.

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