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What is Economics?

What is Economics, and how can students define economics as a science? Therefore, our motivation in this article is to find a general definition of economics. In much of economic literature, there is also consensus and conflict on some description of economics as a science. So how do we start? To neatly define economics in lectures, we need a broad view of the term economics.

Consequently, Economics can be defined as an interdisciplinarysocial, and behavioral science. Therefore, economic research focuses on explaining the behavior of decision-makers. Economics also explains the implications of the behavior of the decision-makers that affect society at the microeconomicmacroeconomic, and political levels. Such an analysis of different decision-makers consequently needs an interdisciplinary approach. Decision-makers in economics are in particular private households, firms, and governments. 

Microeconomic level

At the microeconomic level, economics explains the human nature of making both individual rational and irrational decisions, social interactions, and behavior under risk. Individuals, organizations, and governments make allocation and distribution decisions daily, which economic subjects would like to evaluate. Economics derives the rules of determining; how efficient or optimal the decisions of economic subjects are. It, therefore, determines the necessary rules and coordination mechanisms usable in decision-making processes. Some of the coordination mechanisms include market, government, private, entrepreneurial coordination in an economy. An economy is the environmental unit of economic analysis. 

Macroeconomic level

Economics is also an environmental dimension of macro-environment analysis in the PESTEL-Framework in strategy management. Other PESTEL dimensions include the political, social, ecological, technological, and legal environment. At the macroeconomic level, economics discusses the aggregated effect at the level of the whole economy using the six macroeconomic objectives (magic hexagon).

Policy Level

At the political level, economics deals with the implication of economic decisions of different interest groups in an economy and derives policy recommendations to help maximize social welfare. Consumers, entrepreneurial, government interests are not always similar. Employees’ and employers’ political interests also differ. Therefore, economic policies are essential and help in balancing the different interests as well as maximizing the welfare of society.

Economics deals with Rational and Irrational Behavior

Evident in all economic literature is the issue of rational and irrational behavior as the central point of discussion. In economic theory, the economist tries to explain how people should make decisions depending on their goals and restrictions they face. Rational decisions are those decisions that respect the restrictions and goals of an individual, while irrational behavior could e.g. incur either a higher cost (not respecting restrictions) or lower utility (not respecting the goals) as compared to the rational decision. Rational decision is influence by the cost of opportunities.

Economics is about the Maximum and the Minimum Principle

Economists derive two principles of decision-making that drive the process of making decisions within economic subjects. The maximum principle and the minimum principle.

The Maximum Principle

The maximum principle suggests the following: Attain the maximum output with a predefined amount of inputs.

What is economics?
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The Minimum Principle

The minimum principle suggests the following: Utilize the minimum input to attain a predefined amount of output.

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How to research about Economics

Find a detailed definition of Economics in the International Encyclopedia of the Social & Behavioral Science (2001, Pages 4158-4159) via Science Direct.

Understanding the definition of Economics

In order to understand Economics, it is essential to differentiate between decision-making from three different perspectives: private consumption and income decisions, public consumption and revenue generation, entrepreneurial production and supply of goods and services in an economy. As discussed above, economics is the science of rational decision-making. Firstly, economists try to explain how economic subjects make rational decisions, the limitations of rational decision-making, human interactions and their outcomes. Secondly, economists try to capture the limits of rational behavior and explain how decision-making takes place under imperfect environment conditions; e. g. information asymmetries, uncertainty, imbalance in power between decision-makers … etc.

Economic subjects

The concept of economic subjects is the notion of viewing people in an economy as (1) private households, (2) as firms (or organizations) and as (3) the government (also a form of organization). In general, this means that there are three economic subjects;

  • Private Households
  • Firms (private and public organizations)
  • Government (Public household and organization)

What is an Economy?

An economy is the analytical unit of interest for all economic analysis and includes the people, biosphere and all resources available e.g. a political unit (e.g. Germany, China, France, Ghana) or a unit specified by certain characteristics such as a continent, a supranational unit, an international coalition of nations, etc.

Democracy in Modernity

How is democracy coping with “modernity”? Is the modern global society the Democracy we want, and the World in which the future generations would like to be born into? The youth, “generation z”, is challenging the generation in power to consider their interest in the future of the environment. They will have to take over as the next generation transits to economic and political power.

Peace, Liberty and Justice on Earth or “Heaven”?

Will there be a better place to establish peace among a plural, cosmopolitan, and global society? In a society where neighborhoods comprise a multicultural coexistence of plural communities, constructive dialogue between members is crucial for the promotion of peace, inclusive justice, and respect for all people’s liberty (human rights). Any distortion and subversion of the ultimate goal to achieve the maximum security of peace, liberty, and justice for the global society are tyrannical and an injustice to the global society (both to the future and current generations). There is neither second earth nor a first “heaven” to flee to. It is the negligence of the environment that has caused the conflict between the generations as they debate about generational justice.

“#FridaysForFuture is a movement that began in August 2018, after 15 years old Greta Thunberg sat in front of the Swedish parliament every school[-]day for three weeks, to protest against the lack of action on the climate crisis. She posted what she was doing on Instagram and Twitter and it soon went viral.

On the 8th of September, Greta decided to continue striking every Friday until the Swedish policies provided a safe pathway well under 2-degree C, i.e. in line with the Paris agreement.” –

Source: FridayForFuture

The opportunity costs of the future generations

What kind of environment is the current generation willing to leave behind for the future generations and at whom’s costs are current liabilities being incurred and profits being earned? Those incurring higher costs may not be the payer of the cost, but the future generations. What does global society gain, if it lives at the very essential cost of future generations? How many measures of self-interest (if not selfishness), reciprocal behavior, and altruism is the optimal diet for the unlimited amount of wishes of the current generation?

Impeachment in USA: Should leaders take responsibility of their behavior towards the democracy?

Impeachment is the political process of removing an incumbent holder of a political office from the public office they hold. Leaders elected in their public office should represent the public in a responsible manner, but who really represents the will of the People in a democracy? Where are the checks and balances in the Arms of Government? Is it the Judiciary or the Executive or the Parliament. Are executive privileges above the constitution? Can the executive coerce the legislature (Senate and Congress) to opportunistic behavior and lower the political moral standards? Below is a RSS from CNN for a follow up.

“The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.

Article II – Executive Branch, Section 4 of the Consitution (Ratified 17.06.1788 and as ammended) of the United States of America (USA)

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Critical questions about Democracy

  • What is democracy at a global level?
  • Is democracy valued by the current and will it live up to the future generations?
  • How do the principles of democracy affect international policies?
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