Ultimate Guide To Learning Economics6 mins - Introduction
We live in a world full of opportunities and possibilities. Most of us understand the basics of politics, business, and diplomacy, but economics is a topic that causes confusion. However, economics is vital for business success, and global development. The social science uses mathematics to make conclusions about how a business or country makes choices. When used correctly, economics can increase stability and helps people become more organized and efficient.
The focus of economics is to look at how organizations produce and consume services or goods. There are many types of economics, depending on the scale of use. We’ll look more at this later, but first, let’s delve into the diverse and interesting history of economics.
The History of Economics
We can trace economical thinking all the way back to Ancient Greece, where Hesiod, a farmer, and poet stated that materials, time and labor should be allocated efficiently. We can think of economics as a practical approach to balancing our wants with what we can achieve.
Many people credit Adam Smith for developing the science of modern economics, and while he was a vital factor, it’s important to note the theories of others inspired Smith. French writers that hated mercantilism gave Smith the foundations to build his vision on. He used these philosophies to devise a way countries could measure their economic potential and work together instead of against each other.
Mercantilism was about each country trying to dominate trade, but Smith theorized that countries were self-regulating themselves with these practices. He also believed that governments should not have any part in businesses through taxes and tariffs. Smiths theory resulted in many opinions, and this has resulted in a variety of economic practices.
While there were many critics of the foundations of economics from Karl Marx and other public figures, the field has grown to incorporate countries, governments and business growth. After books such as The Elements of Economics, by Leon Walras mathematics began to play a pivotal role in the subject.
General Equilibrium Theory is a turning point between the idea of economics and implementing the theory. By using statistics and numbers, organizations can gain valuable insights into how they operate and make improvements based on the information. The act of assessing the whole economy and achieving a balance is used today throughout the world.
The Main Areas of Economic Study
While there are many types of economics, the two main variations are microeconomics and macroeconomics. Both use the same principles, but evaluate different areas of production and consumption.
When looking at the world of economics, it’s easy to become confused. Microeconomics looks at things on a smaller scale and focuses on individuals rather than the whole picture. For example, we can apply microeconomics to an individual person, a family unit, a business or an official organization.
The study of microeconomics evaluates how trades occur and the impact of supply and demand on prices. One major aspect of microeconomics is John Nash’s Game Theory.
Human action is the main part of microeconomics, and especially spending behavior. The insights gained from each person or organizations actions shed light larger economic outlooks. For example, if a family spends above their means, they’ll accumulate credit card debts. These small decisions turn into big problems when families around the world are in debt and cannot afford to pay it back. Demand overtakes supply because, without the money to develop products and services, companies can’t meet the demands of other people.
If microeconomics looks at the smaller picture, macroeconomics is the overall story. Macroeconomics is applied when analyzing the economic outlook for countries, continents and even the world. People study government policies, unemployment rates, and business cycles to gain valuable insights into the overall outlook.
Macroeconomics is difficult to understand because there are many factors to consider. This includes inflation, stability, and growth. When used alongside microeconomics, people can gain insights into how small decisions are impacting the economic outlook on a larger scale.
While economic study focuses on implementing mathematics and statistics to gain valuable insights, there are many theoretical approaches within different groups. Economic thought is a philosophical approach to economics rather than a logical one. There are two main schools of thought:
Monetarist and Keynesian Schools of Thought
Monetarists favor free markets and believe they play a vital part in stabilizing the global market. This theory places money as the most important factor in an economy and monetarists believe governments should control the supply of money and inflation rates.
Keynesians disagree with monetarists and place individual spending at the hub of every successful economy. If people don’t spend money, then the economy won’t balance, so they state that governments should spend more to save more. In a recession, we’re more likely to save money but Keynesians say that this causes more problems in the long-run as little economic growth can be achieved.
The Keynesian theory was popular during the 1950s, 1960s, and 1970s, but monetarism is the favored way for governments to balance the economy. However, many say that fluctuating inflation rates will cause long-term damage.
Both theories have their merits and when applied together, governments could achieve long-term stability that seems impossible.
Economics is a diverse and complex subject area, with many theories and practices. Not only can it help governments stabilize the economy, but it also helps people make important decisions. Every decision we make can impact the economy in a certain way, so understanding the fundamentals can help you ensure your own stability.
In uncertain times, looking at studies enables people to determine which career path is right for them and whether buying a house is a good idea. Economics plays one of the most vital roles in households, businesses and on a global scale.