What Is Economics?

Some Answers to a Surprisingly Complex Question

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Graph line rising. Getty Images/Andy Roberts

What at first may appear to be a relatively simple and straightforward question is actually one economists have been trying to define in their own terms throughout history. So it should be no surprise that there is no one universally-accepted answer to the question: "What is economics?"

Browsing the web, you will find various answers to that very question.  Even your economics textbook, the basis for a typical high school or college course, may differ ever so slightly from another in its explanation.

But each definition shares some common principles, namely those of choice, resources, and scarcity. 

What is Economics: How Others Define Economics

The Economist's Dictionary of Economics defines economics as "the study of the production, distribution, and consumption of wealth in human society."

Saint Michael's College answers the question, "what is economics?" with brevity: "most simply put, economics is the study of making choices."

Indiana University answers the question with a longer, more academic approach stating that "economics is a social science that studies human behavior...[it] has a unique method for analyzing and predicting individual behavior as well as the effects of institutions such as firms and governments, or clubs and religions."

What Is Economics: How I Define Economics

As an economics professor and About.com economics expert, if I were asked to provide an answer to that same question I would likely share something along the lines of the following:

"Economics is the study of how individuals and groups make decisions with limited resources as to best satisfy their wants, needs, and desires."

From this standpoint, economics is very much the study of choices. Though many are lead to believe that economics is driven purely by money or capital, in reality, it is much more expansive.

If the study of economics is the study of how people choose to use their resources, we must consider all of their possible resources, of which money is but one. In practice, resources can encompass everything from time to knowledge and property to tools. Because of this, economics helps illustrate how people interact within the market to realize their diverse goals. 

Beyond defining what these resources are, we must also consider the concept of scarcity. These resources, no matter how broad the category, are limited. This is the source of tension in the choices people and society make. Their decisions are a result of the constant tug of war between unlimited wants and desires and limited resources.

From this basic understanding of what economics is, we can break down the study of economics into two broad categories: microeconomics and macroeconomics.

What is Microeconomics?

In the article What is Microeconomics, we see that microeconomics deals with economic decisions made at a low or micro level. Microeconomics looks at questions that relate to individual people or firms within the economy and analyzing aspects of human behavior.  This includes raising and answering questions like, "how does the change of a price of good influence a family's purchasing decisions?" Or at a more individual level, how a person may ask him or herself, "if my wages rise, will I be inclined to work more hours or less hours?"

What is Macroeconomics?

In contrast to microeconomics, macroeconomics considers similar questions but at a larger level. The study of macroeconomics deals with the sum total of the decisions made by individuals in a society or nation such as "how does a change in interest rates influence national savings?" It looks the way nations allocate its resources like labor, land, and capital. More information can be found in the article, What is Macroeconomics.

Where to Go From Here?

Now you know what economics is, it is time to expand your knowledge of the subject. Here are 6 more entry-level FAQs and answers to get you started:

  1. What is Money?
  2. What is the Business Cycle?
  3. What are Opportunity Costs?
  4. What does Economic Efficiency mean?
  5. What is the Current Account?
  6. What are Interest Rates?