June 24, 2024 

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LOCAL OUTPUT: An output that has a relatively small geographic market area due to the high cost of transportation. The high transportation cost means it is easier (that is, less expensive) to locate consumers near the output rather than trying to bring the output to the consumers. Like many things, local outputs are a matter of degree. At the other end of the spectrum lies transferrable outputs. Services, such as legal advice, health care, and entertainment, that are consumed as they are produced, tend to have a great deal of local orientation.

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A social science that studies the allocation of limited resources used to produce the goods and services that satisfy unlimited consumer wants and needs. Economics is one of several social sciences (others are sociology, political science, and anthropology) which applies the scientific method to human behavior. The distinguishing feature of economics is a concern with the fundamental problem of scarcity--unlimited wants and needs and limited resources. Economics is commonly divided into two branches--macroeconomics and microeconomics.
Economics is first and foremost the study of scarcity--the pervasive condition that exists because society has unlimited wants and needs but limited resources. Virtually everything studied in economics, whether it is market exchanges, unemployment, efficiency, or business cycles, relates to the scarcity problem.

Two Branches and Many Fields

The study of economics is divided into two main branches--macroeconomics and microeconomics. Macroeconomics is the study of the aggregate or national economy, dealing with such national issues as unemployment, inflation, and business cycles. Microeconomics is the study of markets, dealing with such issues as prices, industry concentration, and labor employment.

Both branches build on a common set of principles (such as scarcity), but also rely on distinct theories. Reflecting this division, most universities and colleges offer introductory and higher level courses devoted to each branch.

Economics is further divided into numerous fields that extend macroeconomic and microeconomic principles to examine specific areas. Some of the more common and popular fields are: public finance, monetary, development, labor, international, econometrics, mathematical, industrial organization, regional, urban, environmental, and economic thought. Public finance, for example, studies the spending and taxing functions of government; international investigates trade among nations; and economic thought investigates the progression of economic theories.

Most economists gravitate toward one of the two main branches, then specialize in a particular field for much of their work (research and teaching), while maintaining a moderate degree of familarity with one or two related fields.

A Social Science

Economics is one of several social sciences that uses the scientific method to study human behavior. Economics is distinguished from other social sciences, such as political science, anthropology and sociology, in that it studies human behavior related to the fundamental problem of scarcity.

Comparable to any science, economics uses the scientific method of hypothesis verification to examine and explain the economic world. This scientific side of economics is commonly termed positive economics. Economics is also deeply involved with the pursuit of economic goals and public policies, a side commonly termed normative economics.

Whereas positive economics seeks to identify what is, normative economics is concerned with what should be. Both are important to economic study and each is intertwined with the other. Normative economic policy recommendations rely on the scientific principles identified through positive economics. Positive economic investigations pursue the issues economists believe are most important for improving society.

Economic Systems

The study of economics can also be considered the study of the economy, the system that society uses to allocate resources. This system involves production, consumption, and exchange decisions made by households, businesses, and governments. Virtually all economies of the real world are mixed economies, making using of both markets and governments. Two theoretical economic systems often used as benchmarks to evaluate the performance of real world economies are pure market economy, which relies exclusively on markets, and pure command economy, which relies exclusively on governments. Capitalism is a mixed economy that relies more heavily on markets than government. Socialism and communism are two mixed economies that rely more heavily on governments than markets.

A Little History

Because scarcity is an inherent characteristic of humanity, curious humans have been concerned with what is now called economics since the dawn of civilization. Plato, Aristotle, and other philosophers pondered many of the economic questions that remain important today.

The starting point for the modern study of economics, however, can be traced to the publication of An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith in 1776. The Wealth of Nations, as it is commonly called, was the first book to compile and systematically analyze the principles of economics. A primary theme of The Wealth of Nations was the key role of voluntary market exchanges in the efficient allocation of resources, a notion that Adam Smith termed the invisible hand.

Other scholars extended and formalized this study of economics throughout the 1800s, with notable contributions coming from Jean Baptiste Say, Thomas Robert Malthus, David Ricardo, John Stuart Mill, and William Stanley Jevons.

Some of the most important contributions came from Alfred Marshall in the late 1800s. Marshall developed the notion of elasticity, the difference between short run and long run, and the basic graphical analysis of markets that forms the foundation of modern microeconomics.

The next major advancement in economic study came from John Maynard Keynes with publication of The General Theory of Employment, Interest and Money in 1936. Largely an attempt to explain and correct the problems of the Great Depression of the 1930s, The General Theory, formed the foundation of Keynesian economics and led to the development of macroeconomics as a separate branch of economic study.

Nobel Prize

The academic status of economics increased a notch or two in 1969 when it became one of a handful of disciplines to award Nobel Prizes. This prestigious award has been given annually for outstanding contributions to economics. The first award was given jointly to Ragnar Frisch and Jan Tinbergen in 1969. Other notable recipients have been Paul Samuelson (1970), Milton Friedman (1976), Robert Solow (1987), Ronald Coase (1991), and Robert Lucas (1995).

Economic Careers

Like many disciplines, economics can be used to supplement other studies or as a career unto itself. Those who specialize in economics find themselves working in business, government, and academic positions. A bachelors degree provides the training needed to provide a valuable contribution to many business organizations, especially banking and finance, as well as assorted government agencies. A masters degree provides even better training for such jobs and is often minimum qualification for teaching jobs in higher education. A lifelong academic career among the professorial ranks at universities and colleges invariably requires a doctorate degree, which might also put recipients in the running for a Nobel Prize.


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Check Out These Related Terms...

     | macroeconomics | microeconomics | positive economics | normative economics | economy | dismal science | social science |

Or For A Little Background...

     | scarcity | economic goals | seven economic rules | three questions of allocation |

And For Further Study...

     | economic analysis | invisible hand | efficiency | mixed economy | economic system | pure market economy | pure command economy | capitalism | socialism | communism | scientific method | science | hypothesis | principle | production possibilities | short-run production analysis | consumer demand theory | circular flow | business cycles | elasticity | market | American Economic Association | Economic Report of the President | Nobel Prize in Economic Sciences | Wealth of Nations, The |

Related Websites (Will Open in New Window)...

     | Nobel e-Museum | American Economic Association | Job Openings for Economists | Economic Report of the President |

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