Economics

Economics is a social science concerned with the production, distribution, and consumption of goods and services. It's comprised of broader macroeconomics and consumer-centric microeconomics.
Frequently Asked Questions
  • Why is economics important?

    As a field of study, economics allows us to better understand economic systems and the human decision making behind them. Due to the existence of resource scarcity, economics is important because it deals with the study of how societies use/distribute scarce resources and how these processes can be accomplished more efficiently. For some economists, the ultimate goal of economic science is to improve the quality of life for people in their everyday lives, as better economic conditions means greater access to necessities like food, housing, and safe drinking water.

  • Who is the father of economics?

    The 18th-century Scottish philosopher and economist Adam Smith is widely considered to be the father of contemporary economics. Smith’s book, An Inquiry into the Nature and Causes of the Wealth of Nations, is often cited as both his most notable contribution to the field of economics and one of the most influential books ever written. Some of his most famous ideas include the concept of gross domestic product (GDP) and the “invisible hand” behind the free market economy.

  • What are macroeconomics and microeconomics?
    Macroeconomics and microeconomics are the two primary branches of economics. Macroeconomics focuses on the big picture side of economics, specifically the decisions made by countries and governments that affect an economy as a whole. Microeconomics, meanwhile, is the study of smaller scale decisions made by people and businesses that affect individual markets. Despite their differences, both branches are interdependent of each other and share many overlapping issues.
  • What are the four basic concepts of economics?
    There are four economics concepts that are key to understanding economic decision making: scarcity, supply and demand, incentives, and costs and benefits. Scarcity refers to the fact that valued resources are limited in quantity. Supply and demand, meanwhile, is the relationship between the price of a good or service and the consumer interest in purchasing it, which, for example, can incentivize producers to increase the supply of goods when demand rises and consumers to limit their consumption of certain goods when supplies are scarce. Lastly, cost and benefit is the dynamic between how much a good or service costs to produce/purchase versus the benefit acquired from doing so.
Key Terms
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Dotcom Bubble Definition
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U.S. Inflation Rate by Year: 1929–2023
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Bullwhip Effect: Meaning, Example, Impact
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Who Was John Locke?
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Economic Sociology Definition
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Demand Destruction: Meaning, Overview and FAQs
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Efficiency Wages Definition, Theory, Why They Are Paid
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Performativity: What It Is, How It Works, Evidence
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The Great Gatsby Curve: What it Means, How it Works, Implications
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Are We Headed For A Hyperinflation?
Positive Economics History, Theory, Pros and Cons, Example
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The 7 Best Economics Books of 2024
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Generation Z (Gen Z): Definition, Birth Years, and Demographics
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What Is Money? Definition, History, Types, and Creation
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Cost-Push Inflation vs. Demand-Pull Inflation: What's the Difference?
Trade Deficit: Advantages and Disadvantages
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What Does the Law of Diminishing Marginal Utility Explain?
Understanding the Difference Between Moral Hazard and Adverse Selection
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Current Account Balance Definition: Formula, Components, and Uses
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What Is the Balance of Payments (BOP)?
What Is the Quantity Theory of Money: Definition and Formula
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Adverse Selection: Definition, How It Works, and The Lemons Problem
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Business Cycle: What It Is, How to Measure It, the 4 Phases
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Capital: Definition, How It's Used, Structure, and Types in Business
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Consumer Price Index (CPI): What It Is and How It's Used
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What Are Deficits? Definition, Types, Risks, and Benefits
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What Is an Economist? Definition, Role, Duties, and Influence
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What Are Exports? Definition, Benefits, and Examples
Free Market Definition & Impact on the Economy
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Gross Domestic Product (GDP): Formula and How to Use It
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Keynesian Economics Theory: Definition and How It's Used
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The Law of Supply Explained, With the Curve, Types, and Examples
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Law of Supply and Demand in Economics: How It Works
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What Is Market Power (Pricing Power)? Definition and Examples
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Market: What It Means in Economics, Types, and Common Features
Medium of Exchange: Definition, How It Works, and Example
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Who Was Milton Friedman and What Is Monetarism?
Mixed Economic System: Characteristics, Examples, Pros & Cons
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Monopolistic Competition: Definition, How it Works, Pros and Cons
Multiplier: What It Means in Finance and Economics
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What Is the Natural Unemployment Rate?
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Net Exports: Definition, Examples, Formula, and Calculation
Physical Capital: Overview, Types and Examples
Price-Taker: Definition, Perfect Competition, and Examples
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Quota
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Real Gross Domestic Product (Real GDP): How to Calculate It, vs. Nominal
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Standard of Living Definition, How to Measure, Example
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Adam Smith: Who He Was, Early Life, Accomplishments and Legacy
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Normative Economics: Definition, Characteristics, and Examples
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Microeconomics vs. Macroeconomics: What’s the Difference?
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What Is a Bureaucracy and How It Works, With Examples
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Creative Destruction: Out With the Old, in With the New
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Derived Demand: Definition, How It's Calculated, and Uses
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Dumping: Price Discrimination in Trade, Attitudes and Examples
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Externality: What It Means in Economics, With Positive and Negative Examples
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Free Enterprise: Definition, How It Works, Origins, and Example
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Gini Index Explained and Gini Co-efficients Around the World
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Human Capital Definition: Types, Examples, and Relationship to the Economy
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What Is the Invisible Hand in Economics?
Marginal Revenue Product (MRP): Definition and How It's Predicted
Page Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Federal Reserve Bank of San Francisco. "Why Do We Need Economists and the Study of Economics?" 
  2. Adam Smith Institute. "About Adam Smith." 
  3. OECD. "Gross Domestic Product (GDP)." 
  4. U.S. Bureau of Labor Statistics. "Consumer Price Index."