Economics is the social science that deals with the allocation of scarce resources to better social welfare.
Economics has two main areas: Microeconomics, which is responsible for studying the movements of individual or local resources, and Macroeconomics, which is responsible for analyzing the global dynamics of resource management and economic aggregates.
When we see the problem of the allocation of resources by the State and its relationship with politics understood as how the Government is understood, we refer to the so-called Political Economy, and when we speak of the measures that the Governments take in economic matters to its population we speak of Economic Policy.
Depending on how the role of the state in society is interpreted, we will talk about economic models. Currently, the main economic models are Capitalism, Socialism, and Communism.
Next, we will present the definition of Economics of various authors and we will seek to explain very briefly the main areas of study of Economic Sciences as a basic introduction to the subject.
This article is written with the intention that the reader understands the basic principles of Economic Sciences in a simple and orderly manner.
What is economics?
From the real academy of the language, we can find several basic notions of the Concept of Economy and the origin of the word Economy. The first three stand out.
1. Reasonable and effective administration of the goods.
2. Set of assets and activities that make up the wealth of a community or an individual.
3. Science studies the most effective methods to satisfy material human needs, through the use of scarce goods.
Origin of the Word Economy:
from lat. medieval oeconomia, and this one from gr. οἰκονομία oikonomia, from οἶκος oîkos ‘house’ and νέμειν némein ‘distribute’, ‘manage’; see The t. oeconomia ‘layout of a literary work’.
Definition of Economics of different authors:
The economy is a system that coordinates the productive activities of the society and the Economics is the study of the Economies both of individuals and of the society as a whole whereas the market economy is one in which the decisions of production and consumption are taken by producers and consumers.
Krugman , PR , Olney , ML , & Wells , R. (2008). Foundations of economics Publishing Reverted. pp. 100-1two.
Economics is the science that studies how scarce resources are used to satisfy the needs of men in society; on the one hand, it is interested in the essential operations of the production, distribution, and consumption of goods, and on the other, in the institutions and activities whose objective is to facilitate these operations.
Edmond Malinvaud (Schettino, p.4)
Economics is the study of how individuals and society decide to use scarce resources that could have alternative uses, to produce various goods and distribute them for present or future consumption among different people and groups in society.
Samuelson, Nordhaus, Economics Twelfth Edition.
In general, in all the definitions of Economy that we find several points are important to highlight.
- Resources are not unlimited.
- Resources must be optimized to improve social welfare.
- Economics will help study the allocation of these resources.
Microeconomics and Macroeconomics are two divisions of economic theory, the first dealing with individuals and their decisions and the second with economic activity as a whole and the general aggregate.
What is Microeconomics?
Microeconomics is the Branch of Economics that studies the actions of individuals and their decision-making process.
The decisions can be individual, family, or business and the interaction of the previous agents with the environment that surrounds them is analyzed.
Some topics that Microeconomics handles are:
- Consumer behavior: The way individuals will behave given the market conditions in which they find themselves.
- Supply: How the production part of economic agents behaves.
- Demand: How the consumption part of individuals or economic agents behaves.
- General Equilibrium: How the supply and demand for goods and services interact.
- Price: What will be the value assigned to a product depending on market conditions
What is Macroeconomics?
Macroeconomics is the Branch of Economics that studies economic aggregates (sum of individual behaviors) generally in a country, regional or global context.
In this context, some issues handled by Macroeconomics are:
- Economic Growth: Measures variation of the total productive capacity of an economy (country, region, sector) in a period.
- Inflation or deflation: Analysis of price behavior in an economy. If they grow there is inflation, if they decrease there is deflation.
- Unemployment: Measures the level of employed workers over the total potential of workers in a country, region, or sector.
- Debt: Measurement of the global indebtedness of governments, regions, or sectors. It can be public or private.
- Exchange Rate: Measurement of the relative price of different currencies and their exchange value
What is Political Economy?
Political economy is the Branch of Economics that studies the role of the Government in economic management and how production and exchange are organized within society.
In a broad context, some of the questions answered by Political Economy are:
- Which actors should own the means of production?
- What role should the Government play and what are its responsibilities in the Economy?
- How should wealth, exchange, production, and consumption of goods be distributed within society?
- How should the relationship between the Government and the Private Sector work?
As can be seen, there is a very strong philosophical component when answering these types of questions and in many contexts, the political functioning of countries is closely linked to Economic Thought and the ideas of Political Economy that the different leaders in societies may have.
What is Economic Policy?
Economic Policy studies the set of decisions, actions, and changes that governments can take to pursue the objectives of each society.
Some objectives of the Economic Policy of a country can be:
- Maintain stability in the price level.
- Set an economic growth goal
- Establish an optimal level in the taxes paid by society.
- Determine the amount of money circulating in the economy.
In a very general way, we can divide economic policy into four basic fundamental areas. (They can be given more or less depending on how they are interpreted)
Monetary Policy: Responsible for the management and use of money and financial resources in the economy.
Fiscal Policy: Refers to the management of state resources and the level of taxes, fees, collection, and debt of society.
Commercial Policy: It is in charge of the exchange of goods and services of the Country, it can include tariff levels, trade restrictions, commercial areas, etc.
Social policy: It is responsible for the benefits that citizens receive from the State such as health, education, unemployment assistance, or production subsidies.
In economic policy, the term policy instruments are widely used to refer to the various actions that can be taken to seek an objective of Economic Policy. A classic example is using the interest rate down (as an instrument) to stimulate employment and economic growth or using the interest rate up (as an instrument) to control the price level.
Economic Models in the Economy: Socialism, Communism, and Capitalism.
Regardless of any political thought in our societies, there are three fundamental economic models: Capitalism, Socialism, and Communism. Depending on how the role of the State in Society and the ownership of the means of Exchange and Production, including individual liberties and rights to private property, are understood, the three main economic models may not be differentiated:
What is Capitalism?
Capitalism is the dominant economic model in the world and could be defined as a social production system based on the generation of wealth from the private management of the means of production.
Capitalism seeks the generation of profits and the accumulation of wealth through the accumulation of capital and the use of capital itself to generate economic growth and general welfare not from a central government but through the individual and economic interests of the actors. economic and where the salary or payment for work is made freely between the same market agents.
What is Socialism?
Socialism is the economic system that affirms that the means of production and the wealth of the nation must be in the hands of the workers to obtain political and economic equality among all people.
There are several interpretations of the socialist model, in some, it is stated that socialism is a step towards Communism and in others, it is stated that when socialism is reached, use value is prioritized over monetary value in society.
What is Communism?
Communism is the economic model that states that there should be no private property or difference between classes and that the means of production should be managed by a Central State.
The State under the model of Communism must distribute and manage assets fairly and equitably, taking into account the needs of the people.
- The economy is a Social Science that seeks the administration of scarce resources in society.
- It is divided into two main areas Microeconomics and Macroeconomics.
- Political economy is the social understanding of the economy and the Government and Economic Policy is the set of decisions that Governments will take to manage the resources of the State.
- Capitalism, socialism, and communism are the dominant economic models in the world.
To go deeper into the subject, we recommend the video by Maestro SANCHEZ, which can be used to broaden these basic concepts:
- Krugman , PR , Olney , ML , & Wells , R. (2008). Foundations of economics Publishing Reverted. pp. 100-1two.
- Schettino, Macario. Introduction to Economics for Non-Economists, Pearson Education, 2003.