Economics Facts for Kids

Economists study how people make decisions, such as those that occur in a market.

São Paulo's stock exchange. Buyers and sellers are not present themselves. They use intermediaries and technology to trade. Most ideas about buying and selling are the same as in a "real" market though.

Economics is the social science which studies economic activity: how people make choices to get what they want. It has been defined as "the study of scarcity and choice" and is basically about individual choice. It also studies what affects the production, distribution and consumption of goods and services in an economy.

Investment and income relate to economics. The models used in economics today were mostly started in the 19th century. People took ideas from the field of political economy because they wanted to use an empirical approach similar to the one used in the natural sciences.

Subjects and objects in economics
General economic rules
History
Branches of economics
Famous economists
Related pages
Images for kids
See also

Subjects and objects in economics

The subjects (actors) in economic study are households, business companies, the government (the state), and foreign countries. Households offer their "factors of production" to companies. This includes work, land, capital (machines, buildings) and information. They get income which they use to buy or 'consume' goods.

Business companies produce and sell goods and services and buy factors of production from households and from other companies.

The state or public sector includes institutions and organisations. The state takes some of the earnings from the business companies and households, and uses it to pay for "public goods" like streets or education, to be available for everyone. The last subject is foreign countries. This includes all households, business companies and state institutions, which are not based in one's own country. They demand and supply goods from abroad.

The objects (things acted upon) in economic study are consumer goods, capital goods, and factors of production. Consumer goods are classified as "usage goods" (for example, gasoline or toilet paper), as "purpose goods" (for example, a house or bicycle), and as "services" (for example, the work of a doctor or cleaning lady). Capital goods are goods which are necessary for producing other goods. Examples of these are buildings, equipment, and machines. Factors of production are work, ground, capital, information, and environment.

General economic rules

All people have to decide between their options.
The cost of goods is what a person gives up for the goods.
When a person gives up something (like money) to get a good, they also give up other things that they could have gotten instead. This means that the true cost of something is what you give up to get it. This includes money, and the economic benefits ("utility") that you didn't get because you can no longer buy something else.This is called opportunity cost.
People react to encouragements ("incentives"). Making an option more attractive will make more people choose it.
Trade can make everyone better off.
Markets are usually good for the organisation of economic life. In the free market, goods will be shared by people and companies making small decisions. The “invisible hand” of the market (Adam Smith) states that if everyone tries to get what they want, everyone will be as well-off as they could possibly be.
Sometimes prices do not fully show the cost or benefit to society. For example, air pollution is bad for society, and education is good for society. The government can put a tax (or do something to reduce sales) on items that are bad for society. It can also support (like giving money for) items that are good for society.
The living standard of a country depends on the skills to produce services and goods. Productivity is the amount of the produced goods divided by total working hours.
When there is an increase in the total money supply, or when the cost to produce things rises, prices go up. This is called inflation.

History

18th century analysis of wealth
- Physiocracy
classical economics
Marxist economics
Austrian economics
neoclassical economics
welfare economics

Economists are strongly influenced by the times they live in. For example, Karl Marx lived in a time where workers' conditions were very poor, and John Maynard Keynes lived through the Great Depression of the 1930s. Today's economists can look back and understand why they made their judgments, and try to make better ones.

Branches of economics

The two main branches of economics are microeconomics and macroeconomics.

Macroeconomics is about the economy in general. For example, if a country's wealth goes up or if millions of people become unemployed, those are things that macroeconomists study. Microeconomics is about smaller and more specific things such as how families and households spend their money or how a business operates.

There are a number of other branches of economics:

Behavioral economics
Business economics
Constitutional economics
development economics
ecological economics
economic geography
environmental economics
energy economics
financial economics
industrial economics
information economics
international economics
labor economics
managerial economics
mathematical economics or econometrics
resource economics
urban economics
public economics
descriptive, theoretical and policy economics
monetary economics

Famous economists

Famous economists in history include:

Adam Smith (considered to be the father of economics; he supported free markets).
Thomas Malthus (he wrote about how a high population can affect the economy badly).
Karl Marx (he wrote a book called The Communist Manifesto; he supported communism).
John Maynard Keynes (he created a popular economic theory called Keynesian economics).
Milton Friedman (he wrote a lot about monetarism and the money supply).