Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources. The building blocks of economics are the studies of labor and trade.
What is the economics?
Economics is about making choices. We make all kinds of choices every day. How much should I spend on gas? What’s the best route to work? Where should we go for dinner? Which job or career should I go for? What are the pros and cons of finishing college versus taking a job or inventing the next, best Internet startup? Which roommate should take care of washing the dishes? Can I get that dog as a pet? Should I get married, have children, and if so, when? Which politician should I vote for when they all claim they can improve the economy or make my life better? What is “the economy,” anyway? What if my personal or religious principles conflict with what people tells me is in my best economic interest?
- Economics is the study of how people allocate scarce resources for production, distribution, and consumption, both individually and collectively.
- Two major types of economics are microeconomics, which focuses on the behavior of individual consumers and producers, and macroeconomics, which examine overall economies on a regional, national, or international scale.
- Economics is especially concerned with efficiency in production and exchange and uses models and assumptions to understand how to create incentives and policies that will maximize efficiency.
- Economists formulate and publish numerous economic indicators, such as gross domestic product (GDP) and the Consumer Price Index (CPI).
- Capitalism, socialism, and communism are types of economic systems.
Types of Economic Systems
Societies have organized their resources in many different ways through history, deciding how to use available means to achieve individual and common ends.
This economic system is defined by very little division of labor and resulting low productivity, a high degree of vertical integration of production processes within the household or village for what goods are produced, and relationship based reciprocal exchange within and between families or tribes rather than market transactions. In such a primitive society, the concepts of private property and decision-making over resources often apply at a more collective level of familial or tribal ownership of productive resources and wealth in common.
Later, as civilizations developed, economies based on production by social class emerged, such as feudalism and slavery. Slavery involved production by enslaved individuals who lacked personal freedom or rights and were treated as the property of their owner.
Capitalism emerged with the advent of industrialization. Capitalism is defined as a system of production whereby business owners (entrepreneurs or capitalists) organize productive resources including tools, workers, and raw materials to produce goods for sale in order to make a profit and not for personal consumption.
Socialism is a form of cooperative production economy. Economic socialism is a system of production where there is limited or hybrid private ownership of the means of production (or other types of productive property) and a system of prices, profits, and losses is not the sole determinant used to establish who engages in production, what to produce and how to produce it. Segments of society band together to share these functions.
Communism is a form of command economy, whereby nearly all economic activity is centralized, and through the coordination of state-sponsored central planners. A society’s theoretical economic strength can be marshaled to the benefit of the society at large. Executing this in reality is far more difficult than in theory, in that it requires no conflicting or competing entities within the society to challenge the allocation of resources. Note that instances of economic communism in the modern era have also been coupled with an authoritarian form of government, although this need not be the case in theory.
Economic indicators are reports that detail a country’s economic performance in a specific area. These reports are usually published periodically by governmental agencies or private organizations, and they often have a considerable effect on stocks, fixed income, and forex markets when they are released. They can also be very useful for investors to judge how economic conditions will move markets and to guide investment decisions.
Below are some of the major U.S. economic reports and indicators used for fundamental analysis.
- Gross Domestic Product (GDP)
- Retail Sales
- Industrial Production
- Employment Data
- Consumer Price Index (CPI)