What is Economics?

Extending the above definition, economics answers reveal that economics is a vital inefficient and equitable allocation of resources to maximize the welfare of individuals, groups, or economies. There is a need for individuals and businesses to understand the economic impact of their everyday decisions, but it is also important to look at the bigger picture to see how these decisions affect entire industries and economies. For instance, a farmer needs to understand how his timing affects crop production, but there is also a need to know how decisions farmers take affect the agricultural industry and the country economy as a whole.

The study of individual agents (companies, markets, or individuals), their decisions, and the impact of these decisions are referred to as microeconomics. The study of the aggregate interactions in an economy as a whole is seen as macroeconomics.

It is important to note that, economics is not all about money. It is about weighing alternatives and choices and choosing what will give the best results. While some of the crucial decisions you make every day are about money, most of the decisions you make will be about making the best of your time and your skills.

The Role of Economics

Resources are limited. Human wants are insatiable. Granted, there is a need for people and governments to make the best choices. When we study how people make choices and the consequences of those choices, we enable people to make better choices. Economics, having crept through all aspects of human life, has an important role to play in maximizing the use of limited resources.

It is the social science concerned with solving agricultural and environmental issues and also directing how policies are made in a country. Through improved policies, economies can reduce pollution, control exploitation of natural resources, and enhance agriculture and food production and generally craft a balance between wants and available resources.

Economists have been said to take the work of fixers, bean-counters, and philosophers. As fixers, economists solve problems faced by people, companies, markets, or governments. As bean-counters, economists calculate costs and compare them with prices and value offered. Besides, as philosophers, economists play with ideas to come up with the best solution for a problem.

An economist may decide to play the role of a bean-counter or a philosopher, but in most cases, economists play more than one purpose.

Economics as a Social Science

Nearly all the major problems facing the world from poverty, global warming, conflicts in Syria and much more can be solved using economics. As a social science, economics apply scientific methods in every work of research including:

• Describing and measuring observations made, for instance, how interactions between individuals affect prices or products over time.
• Explaining views made by developing hypotheses just like physical scientists do. It is at this point that economists construct models for the observations.
• Testing of hypotheses and models against collected data. If the model works or the assumptions prove to be true, economists can forecast the future almost accurately.
• Economists use real-world data. Unlike physical scientists, social scientists cannot have controlled experiments since human behavior is bound to change. When studying macroeconomics, there are thousands of variables contributing to the outcomes of a study, making it a challenge to test hypotheses accurately.

After research, economists solve problems in three easy steps:

• Abstraction – This is where a problem is broken down into its constituent parts for easy study. For instance, a big company has numerous employees each with a specific role and countless external factors contributing to its bottom-line.
• Analysis – This involves observing past data to identify which choices have been made irrationally.
• Correction – Here, the sources of irrational decisions are tweaked or changed through policies to realize better results.