What is Economics?

Economics is a social science that studies human behavior. Economics has a unique method for analyzing and predicting individual behavior as well as the effects of institutions such as firms and governments, or clubs and religions.

Economics begins with the assumption that everyone's behavior is primarily motivated by self interest and constrained by the limited amount of resources under their control. Agents who choose the least-cost path to increasing their well being are behaving efficiently. Therefore, economic models use constrained optimization of well being. The interactions of individuals in markets, each trying to balance their own costs and benefits, leads to an equilibrium - prices and quantities that remain stable until some fundamental condition changes. The presence of an equilibirum in each market gives individuals an info-gathering mechanism through which they learn of and can react to the effect of their decion their own well being.

Economics has a unified method of analysis. The decision-making process is broken down into discrete steps and the impact of each step is analyzed. The focus is on the effect of incremental changes in relevant variables. This analytical method yields estimates of the marginal effects of alternative decisions.

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