What Is Economics?

Simply, and perhaps surprisingly put, economics is the study of scarcity. Resources are limited, and every society wants to figure out how to allocate its resources for maximum benefit. The field of economics serves in large part to help answer this resource allocation question. Economists study topics such as:

• How prices and quantities of items are determined in market economies
• How much value markets create for society
• How taxes and regulation affect economic value
• Why some goods and services are under-supplied in a market economy
• How firms compete and maximize profit
• How households decide what to consume, how much to save, and how much to work (or, more generally, how people respond to incentives)
• Why some economies grow faster than others
• What effect monetary and fiscal policy has on economic well-being
• How interest rates are determined

In order to fully understand what economics is, it’s important to also understand a bit about what economics isn’t. For example, economics and finance are related but separate fields, and it’s not an economist’s job to tell people what stocks and bonds they should be investing in.

It is, on the other hand, an economist’s job to understand the relationship between interest rates and bond prices. In a similar fashion, many of the topics discussed in The Economist deal with politics and current events and are not specifically economic-related, despite the title of the publication.

Understanding what economists do and don’t study is important, since sometimes economists are called on to answer questions that they are not technically qualified to analyze, and this can have unsatisfactory results.