Definition
The word “economy” comes from the Greek word Oikonomos meaning “one who manages a household”. Households and economics have much in common, both face the same fundamental problem: available resources cannot produce all the goods and services people desire. (Gans et al.)
Why Economics Matters
Economics is the study of how society manages its scarce resources, and it isn’t just a dry collection of theories! It is a dynamic system of markets (supply & demand!), policy and market forces: consumer preferences, competition and incentives, and how they shape outcomes. It is a social science, another way of studying social relationships and human behaviour, just like psychology.
Example
An example of economics is price elasticity of demand (microeconomics), which shows how consumers consumption changes depending on price.
Limitations
”Economics is inherently limited by the unpredictability and irrationality of human behaviour, complication accurate market predictions.” Examples include animal spirits whereby confidence, hope, fear and pessimism arise during economic uncertainty driving irrational money decisions. (Tardi)
Work cited:
Gans, Joshua, et al. Principles of Microeconomics. South Melbourne, Victoria, Australia, Cengage Learning Australia, 2021.
Tardi, Carla. “Don’t Let Your Animal Spirits Influence Your Important Decisions.” Investopedia, 24 May 2021, www.investopedia.com/terms/a/animal-spirits.asp.
