Basic Definitions of Economics

Economics can be defined as " a social science that deals with the management, distribution, and analysis of factors regarding goods and services." This is a pivotal social science, because many of our decisions function in an economic manner. Economics also influence national and foreign policy . Currently, the world may be seeing the demise of a neoliberal free market economy. To make sense of the current status of the global financial crisis, there are some basic terms that should be known. 

• Theoretical Economics- A branch of economics that draws on facts to produce an explanation for particular behavior. Economists attempt to use laws and principles to formulate economic policy. The idea is to understand how the market place function including the workers, consumers, governments, and businesses. From these theories economic policies are formed. However, these theories lead to a principle that provide a prediction of economic behavior. Theories, laws, and principles are classified as generalizations. The behavior can be so erratic from the market and individuals that deriving facts would be almost impossible.
• Policy Economics--Theories and data can be used to develop certain agendas. The point is to find a solution to a particular economic problem. The problems could include poverty, unemployment, recessions, and depressions. Policy formation just like in politics, requires rigorous attention to detail. Polices have not always been successful and in certain cases caused more damage. The introduction of supply side economics under the Ronald Reagan administration increased the gap between the rich and poor in the US. 

 

• Macroeconomics- This field examines economics as an entire aggregate. The whole range of human and market behavior is studied from governments, to households, and the business sector. Individual behavior is not given much thought. Measures such as total output, total employment, and total income are the major focus areas. This can be limiting, because many separate units form an economic system . Without workers, businesses, and governments there would not be an economy.  
• Microeconomics-  Examines the smaller units that form the economy. An example would be the actions of a firm or an individual consumer.Many activities can overlap between being micro or macro economic. The trading of stock could be both. It can involve individual holders of stock and the entire market.   

• Positive Economics- This type of discipline examines cause and effect relationships. It attempts to be scientific in structure by doing theory testing. It also involves a process of theory development. This branch of economics rejects value judgments as not being realistic. The goal is to describe how the economy functions in action, not on paper. 
• Normative Economics- This school of thought wants to develop policies to form an economy on what it should be. Policies should be developed based on specific value judgments. The foundation is based on ideas, rather than actual praxis. 

Further Reading 

McConnell, Campbell and Bruce, Stanley. Economics Principles, Problems, and Policies. 

                  New York: McGraw-Hill Irwin,2005.