ECONOMICS

THE ECONOMICS

Economics is the social science that studies the behavior of individuals’ households, and organizations (called economic actors, players, or agents), when they manage or use scarce resources, which have alternative uses, to achieve desired ends. Agents are assumed to act rationally, have multiple desirable ends in sight, limited resources to obtain these ends, a set of stable preferences, a definite overall guiding objective, and the capability of making a choice. There exists an economic problem, subject to study by economic science, when a decision (choice) has to be made by one or more resource-controlling players to attain the best possible outcome under bounded rational conditions. In other words, resource-controlling agents must maximize value subject to the constraints imposed by the information the agents have, their cognitive limitations, and the finite amount of time they have to make and execute a decision. Economic science centers on the activities of the economic agents that comprise society. They are the focus of economic analysis.

The traditional concern of economics is to gain an understanding of the processes that govern the production, distribution and consumption of goods and services in an exchange economy. An agent may have purposes or ends, such as reducing or protecting individuals from crime, on which he or she wants to spend resources. Economics may study how the agent determines the amount of resources to allocate for this purpose, aside from the traditional concern of economics.

An approach to understanding the processes of production, distribution, and consumption, through the study of agent behavior under scarcity, may go as follows: The continuous interplay (exchange or trade) had done by economic actors in all markets sets the prices for all goods and services which, in turn, make the rational managing of scarce resources possible. At the same time, the decisions (choices) made by the same actors, while they are pursuing their own interest (their overall guiding objective), determine the level of output (production), consumption, savings, and investment, in an economy, as well as the remuneration (distribution) paid to the owners of labor (in the form of wages), capital (in the form of profits) and land (in the form of rent). Each period, as if they were in a giant feedback system, economic players influence the pricing processes and the economy, and are in turn influenced by them until a steady state (equilibrium) of all variables involved is reached or until an external shock throws the system toward a new equilibrium point. Because of the autonomous actions of rational interacting agents, the economy is a complex adaptive system.

The term economics comes from the Ancient Greek οἰκονομία (oikonomia, "management of a household, administration") from οἶκος (oikos, "house") andνόμος (nomos, "custom" or "law"), hence "rules of the house(hold for good management)".Political economy' was the earlier name for the subject, but economists in the late 19th century suggested "economics" as a shorter term for "economic science" to establish itself as a separate discipline outside of political science and other social sciences.

Economics focuses on the behavior and interactions of economic agents and how economies work. Consistent with this focus, primary textbooks often distinguish between microeconomics and macroeconomics. Microeconomics examines the behavior of basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production, consumption, savings, and investment) and issues affecting it, including unemployment of resources (labor, capital, and land), inflation, economic growth, and the public policies that address these issues (monetary, fiscal, and other policies).

Other broad distinctions within economics include those between positive economics, describing "what is," and normative economics, advocating "what ought to be"; between economic theory and applied economics; between rational and behavioral economics; and between mainstream economics (more "orthodox" and dealing with the "rationality-individualism-equilibrium nexus") and heterodox economics (more "radical" and dealing with the "institutions-history-social structure nexus").

Besides the traditional concern in production, distribution, and consumption in an economy, economic analysis may be applied throughout society, as in business, finance, health care, and government. Economic analyses may also be applied to such diverse subjects as crime, education, the family, law, politics, religion, social institutions, war, and science; by considering the economic aspects of these subjects. Education, for example, requires time, effort, and expenses, plus the foregone income and experience, yet these losses can be weighed against future benefits education may bring to the agent or the economy. At the turn of the 21st century, the expanding domain of economics in the social sciences has been described as economic imperialism.

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SOURCE:WIKIPEDIA