science that seeks to analyze and describe the production, distribution, and consumption
No one has ever succeeded in
neatly defining the scope of economics. Economists used to say, with Alfred Marshall, the
great English economist, that economics is "a study of mankind in the ordinary
business of life; it examines that part of individual and social action which is most
closely connected with the attainment and with the use of the material requisites of
wellbeing"--ignoring the fact that sociologists, psychologists, and anthropologists
frequently study exactly the same phenomena. Another English economist, Lionel Robbins,
has more recently defined economics as "the science which studies human behaviour as
a relationship between (given) ends and scarce means which have alternative uses."
This definition--that economics is the science of economizing--captures one of the
striking characteristics of the economist's way of thinking but leaves out the
macroeconomic approach to the subject, which is concerned with the economy as a whole.
Difficult as it may be to
define economics, it is not difficult to indicate the sort of questions that economists
are concerned with. Among other things, they seek to analyze the forces determining
prices--not only the prices of goods and services but the prices of the resources used to
produce them. This means discovering what it is that governs the way in which men,
machines, and land are combined in production and that determines how buyers and sellers
are brought together in a functioning market. Prices of various things must be
interrelated; how does such a "price system" or "market mechanism"
hang together, and what are the conditions necessary for its survival?
These are questions in what is
called "microeconomics," the part of economics that deals with the behaviour of
such individuals as consumers, business firms, traders, and farmers. The other major
branch of economics is "macroeconomics," in which the focus of attention is on
aggregates: the level of income in the whole economy, the volume of total employment, the
flow of total investment, and so forth. Here the economist is concerned with the forces
determining the income of a nation or the level of total investment; he seeks to learn why
full employment is so rarely attained and what public policies should be followed to
achieve higher employment or more stability.
But these still do not exhaust
the range of problems that economists consider. There is also the important field of
"development economics," which examines the attitudes and institutions
supporting economic activity as well as the process of development itself. The economist
is concerned with the factors responsible for self-sustaining economic growth and with the
extent to which these factors can be manipulated by public policy.
Cutting across these three
major divisions in economics are the specialized fields of public finance, money and
banking, international trade, labour economics, agricultural economics, industrial
organization, and others. Economists may be asked to assess the effects of governmental
measures such as taxes, minimum-wage laws, rent controls, tariffs, changes in interest
rates, changes in the government budget, and so on.