Economics, broadly speaking, is the study of
how people make choices among the various available alternatives.
Economics is a social science; it is "social" because basic economic
theory examines people and their behavior, and "science" because the
concept of economics entails hypothesis formation, testing, mathematical
modeling and equations.
An
adequate intro to economics does not require an extensive perusal of
graphs or solving complex functions, only a familiarity with a few
everyday words with specific meanings in the economic field.
Scarcity, Choice and Cost
For
all people, the basic economic problem is meeting needs given a finite
amount of resources with which to accrue those needs. "Scarcity"
underscores the distinction between what people want and what they truly need
to survive; because human wants (not needs) exceed the capacity of
people to produce what is wanted, there is a scarcity of some goods or
commodities. Not everyone can get an A in every course or finish in the
top five of every cycling race.
Sciencing Video Vault
"Choice"
in this context means the decision to allocate resources toward a given
good. Usually, this comes at the cost of something else. If you decide
it is more important to you to buy a new video game than to repair your
bicycle, and cannot afford both, buying the game comes at the cost of
fixing your bike.
Basic Economic Theory: Supply and Demand
Any
introduction to economics course places the concept of supply and
demand front and center, and even those who have little interest in
economics are likely to hear the term "law of supply and demand" bandied
about. Usually, supply and demand curves (or lines) are graphed
together to show the relationship between rising or falling supply,
rising or falling demand, and price. Supply shortages and demand
increases tend to drive up prices, as people compete to a greater extent
for a given resource. If supply increases in accordance with demand,
the price may remain the same.
Microeconomics vs. Macroeconomics
The
distinction between these two sub-fields of economics is somewhat
arbitrary, but important. Macroeconomics concerns the aggregate choices
of members of a society and things that affect whole populations, such
as inflation and unemployment. Microeconomics concerns individual and
small-group choices, such as firms attempting to maximize their business
profits.
Gross Domestic Product
Gross
domestic product, or GDP, is a continual element of the U.S. news
cycle. GDP is a measure of a nation's total output and hence a measure
of its economic strength. Mathematically, it is the sum of consumer
spending, consumer investment, government spending and net exports.
Consumer spending is just what it sounds like, everyday people
purchasing goods from merchants. Investment, this context, means
business investment, such as a company putting money into a new office
building. Government spending includes endeavors such as infrastructure
projects (e.g., roads and bridges). Exports are simply goods sold to
other countries, while imports are goods bought from other countries.
Net exports are negative when imports exceed exports in value (this is
called a trade deficit).