Economics is a science of choices. Economics is the study of how you make decisions / choices under conditions of scarcity and of the results of those choices for the society. Each and every rational decision you make is a part of economics. Even the decision to marry a woman of your choice falls under the ambit of economics. Let’s take an example of choosing a class from difference class-sizes, a motivated economics student might definitely prefer to be in a class of 20 rather than a class of 100, everything else being equal. But other things, of course, are not equal specially cost. Students can enjoy the benefits of being in a smaller class, but only at the price of having less money for other activities. The student’s choice certainly will come down to the comparative importance of conflicting activities.

what is economics

Such kind of trade-offs is common and significant in the core principles of economics. It is called the principle of scarcity because the simple fact of scarcity makes trade-offs essential. The alternative title for the scarcity principle is the no-free-lunch principle (which comes from the thought that even lunches that are given to you are never really free—somebody, somehow, always has to pay for them).

Intrinsic in the idea of a trade-off is the fact that choice contains compromise between competing benefits. Economists resolve such trade-offs by using cost-benefit analysis, which is based on the principle that an action should be taken if, and only if, its benefits surpass its costs. We call this declaration the cost-benefit principle, and it is also one of the core principles of economics.

Cost benefit principle: An individual, firm or a society should only make a choice if, and only if, the additional benefit from taking the action is at least as ample as the additional costs.

Generally speaking, economics can be divided into microeconomics and macroeconomics. Microeconomics deals with individual members of an economy like household, consumer and business; macroeconomics on the other hand looks economy as a whole and addresses issued which are common for all members of the economy such as inflation, unemployment, interest rates, taxes, and government spending to regulate an economy’s growth and stability.