What Economics Is
Some definitions of economics stress subject matter-how scarcity is dealt
with and how people's wants are satisfied. Another type of
definition stresses the methods and techniques used by
economists.
The two main branches of economics are microeconomics and macroeconomics.
Microeconomics is the part that focuses on the behavior of
decision makers who are inside or part of a larger economic
system. Every economic system must provide ways of answering the
microeconomic questions of what to produce, how to produce, and
for whom to produce.
Macroeconomics is the branch of economics that deals with aggregate, or
"grand total," economic activity. It examines how the
whole economic system operates and focuses mainly on the topics
of inflation and unemployment.
Inflation is a sustained increase in the general price level.
Unemployment may be either microeconomic or macroeconomic,
depending on the reason why a person is unable to find work.
Microeconomic unemployment arises because of changes in the
types of goods and services produced or in the ways of producing
them-the what and how decisions in microeconomics. Macroeconomic
unemployment extends over the whole economy and affects many
different occupations at the same time.
Economic growth and development are two other important economic
subjects. Economic growth is a measured percentage rise each
year or each decade in production, either total or per capita.
Economic development means economic growth as well as some
improvements in the "quality of life" and in the
distribution of income.
Economic systems are the combinations of institutions that societies have
set up to deal with economic problems. On a mechanism basis,
they can be classified as market economies or planned economies.
Market economies integrate the various economic questions
through the institutions of free exchange in markets. Planned
economies use governments and other agencies to accomplish this
integration. All existing economies are mixed, with elements of
both market and planning systems.
Economic systems can also be classified on the basis of ownership. In
capitalist systems, private property rights extend from ordinary
consumption goods to productive inputs. In collectivist systems,
productive inputs (except for labor) are collectively owned. If
the agency owning these goods is the political state or an
agency of the state, we have socialism, which is the most
important form of collectivism.
In traditional economies, custom and religion play major parts. Much
property is usually held in common, and occupations tend to
remain in families. There is much stress on "justice"
in price and wage fixing, and often we find resort to prayer,
magic, and the supernatural. In these economies, the important
decisions are made by kings and queens, chiefs, priests, or
feudal lords.
A capitalist economy is more apt to rely on the market mechanism than is
a collectivist one. Collectivist (including socialist) economies
are more likely to be planned than are capitalist ones.
Conversely, a market economy is apt to be capitalistic, and a
planned economy socialistic, but there are important exceptions
to this generalization.
Six criteria are suggested for evaluating economic systems: (a) a high
current living standard; (b) economic growth, pointing to a high
future living standard; (c) "equitable " distributions
of income and wealth; (d) security of the living standard
against downward shocks; (e) compatibility with human rights;
and (f) compatibility with physical and mental health.
