Louis Sermage

What is Economics for?

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.

In the 19th century economics was the hobby of gentlemen of leisure and
the vocation of a few academics, economists wrote about economic policy
but were rarely consulted by legislators before decisions were made.

Economics focuses on the actions of human beings, based on assumptions

that humans act with rational behavior, seeking the most optimal level of
benefit or utility. The building docks of economics are the studies of labor
and trade. Economics has a task to determine which methods yield the best
results.

Economics can generally be broken down into macroeconomics, which

concentrates on the behavior of the economy as a whole, and
microeconomics, which focuses on individual people and businesses.

In economics, a commonly discussed factor is the opportunity cost.

People think about goods and services in terms of how much money they
cost, and opportunity cost represents a decision that you make based on
what you have to give up as the next best alternative if you make a particular
decision.

Any decision you make that has two or more choices involves some type of
opportunity cost. Say a sailor is shipwrecked on a deserted island, and he can
spend his day either catching 10 fish or harvesting five coconuts before the
sun goes down.

His opportunity cost of harvesting one coconut is two fish.

If you go to the store and see that milk costs $4 a gallon, and you can buy
bread for $2, milk has a relative price that equates to two loaves of bread. If
you only have $4 and you get the milk, then you would say the opportunity
cost of your milk was the two loaves of bread you could have bought.

Often, the price of one good relative to another provides more useful insight
into consumer choices and behavior than its actual monetary price.

Microeconomics focuses on how individual consumers and firms make

decisions; these individual decision making units can be a single person, a
household, a business/organization, or a government agency.

It tries to explain how they respond to changes in price and why they
demand what they do at particular price levels. Microeconomics also
explains how and why different goods are valued differently, how individuals
make financial decisions, and how individuals best trade, coordinate, and
cooperate with one another.

Macroeconomics studies an overall economy on both a national and

international level, using highly aggregated economic data and variables to
model the economy. Its focus can include a distinct geographical region, a
country, a continent, or even the whole world.

Topics studied include foreign trade, government fiscal and monetary policy,
unemployment rates, the level of inflation and interest rates and the growth
of total production.

Micro- and macroeconomics are intertwined. However these two branches

of economics use very different theories, models, and research methods,
which sometimes appear to conflict with each other.

Integrating the microeconomics foundations into macroeconomic theory and

research is a major area of study in itself for many economists.

There are types of economic systems :

Primitivism, families and tribes build their own dwellings, grow their own
crops, hunt their own game, fashion their own clothes, bake their own bread,
etc. 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.

There is feudalism, feudalism was a system where a class of nobility, known

as lords, owned all of the lands and leased out small parcels to peasants to
farm, with peasants handing over much of their production to the lord. In
return, the lord offered the peasants relative safety and security, including a
place to live and food to eat.

Capitalism, it 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. Entrepreneurs apply their best
judgement of future economic conditions to decide what goods to produce,
and are earn a profit if they decide well or suffer losses if they judge poorly.
Workers, resource owners, capitalists, and entrepreneurs) represent
functions in the capitalist economy. The United States and much of the
developed world today can be described as broadly capitalist market
economies.

Socialism, it 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.

Modern socialism contains certain elements of capitalism, such as a market

mechanism, and also some centralized control over some resources. If more
of the economic control is centralized in ever increasing ways, it may
eventually become more akin to communism. Socialism as an economic
system can and does occur under various forms of government, from the
Democratic Socialism of the Nordic countries to more authoritarian strands
found elsewhere.

Communism, it is a political and economic doctrine that aims to replace

private property and a profit-based economy with public ownership and
communal control of at least the major means of production (e.g., mines,
mills, and factories) and the natural resources of a society. 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.

Economics is concerned with helping individuals and society decide on the

optimal allocation of our limited resources.

The fundamental problem of economics is said to be scarcity - the idea that

wants (demand) is greater than the resources we have.

Both inflation and mass unemployment can be devastating for society.

Economists argue that both can be avoided through careful economic
policies.

For example:

- Policies to reduce unemployment

- Policies to reduce inflation

An economy refers to a region or country’s resources and wealth, especially

as it pertains to producing and consuming goods and services.

Economics is important because it helps people understand how a variety of

factors work with and against each other to control how resources such as
labor and capital get used, and how inflation, supply, demand, interest rates
and other factors determine how much you pay for goods and services.