Economics studies the forces that drive the production, distribution and consumption of goods and services that fulfill human needs and desires. In simpler terms, it's the science of understanding the supply and demand for products and services that people want and need.
Economists classify economic output into physical goods such as products, and intangible services, such as skills or resources that provide some kind of utility, fulfilment or satisfaction to the consumer. Economics has three main tasks: description, explanation and evaluation.
Description: The Fundamental Task
Observing and describing the behavior and interaction between different economic actors is the basis for any further research or conclusions that economists draw. Given that the world is a huge jumble of figures, transactions and currencies, economics can be described as being micro and macro.
Microeconomics spotlights the detailed building blocks of an economy. These are the individuals, businesses and local markets that buy and sell goods and services. For example, microeconomics would consider a family shopping for food at a supermarket and the role that the supermarket plays in supporting the local community. Macroeconomics looks at an entire economy. This means the sum total of all the production, consumption and investment made within a given sector of the population. Macroeconomics is also interested in describing the effects of human resources, physical resources and land on economic growth, inflation and government policy. An example is how the politics of the oil trade affect the price of automobile fuel, which further has an impact on the amount of money people are left with in their pockets after filling up their tanks.
Explaining Economic Events
Describing what is happening on a micro- or macroeconomic level is the basic task of economics, but it is also important to understand why a particular economic event is happening. Economists can look in several different directions to explain what drives consumer behavior -- for example, examining how a particular population's buying and selling patterns impact the availability of resources.
Evaluation and Normative Economics
Evaluation or analysis takes the concept of micro- and macroeconomics further by thinking about how the economic world can be shaped by changing policy. Evaluation is also called normative economics because it advocates for how a particular economic decision can create change to better the lives of people, the interests of consumers or the fiscal health of an organization or government body.
Applying the Tasks on a Macro Level
How a government forms its fiscal laws and policies is in large part shaped by the tasks of economics. The structure, performance and behavior of a society's financial and commercial systems is dictated by the way that its government describes, explains and evaluates trends in the consumption of goods and services. Macroeconomists are concerned with large-scale trends such as gross domestic product, the unemployment rate and bank interest rates, because these are the kind of data that governments evaluate and manipulate to stabilize price fluctuations, inflation and international trade.
Applying the Concepts on a Micro Level
The main tasks of economics can also be felt in smaller or more localized situations. Microeconomists look at how businesses and consumers are guided by the resources available to them. The emphasis here is on the markets where products and services are manufactured, sold and bought. Supply and demand is a concept that's key to applying microeconomic tasks: Supply and demand for goods and services determines an equilibrium price point where a certain amount of a poduct is produced for the current demand at the current price.
A product in high demand can get a higher price because consumers perceive that the product has more benefits than the cheaper options, and more customers are willing to buy the item. Conversely, prices drop when a product's demand drops.
Micro- and macroeconomics are inevitably tied. Organisations and governments, no matter how large or small, operate in a global economy. Increasing marketplace competition and emerging world economies are fostering interdependence and collaboration in the economic arena. This means that the core tasks of describing, explaining and evaluating are being constantly redefined as more products and services are bought and sold across borders.