Every day, people make choices. A student decides how to use the hours after school. A business decides how to use its workers and equipment. A local government decides which projects and services to support. These decisions may look very different, but economists study them all.
Economics is the study of how people and societies make choices when resources are limited. Economists study decision-making at many levels, from the choices of individuals and families to decisions made by businesses, governments, and entire societies.
Money can be one of the resources involved in an economic decision, but it is not what makes a question economic. Economists study choices involving time, work, land, materials, equipment, and many other resources. They also apply economic thinking to subjects such as education, health, employment, immigration, and the environment. Economics is therefore less about a particular topic and more about the kinds of questions economists ask about choices and decisions.
Thinking Like an Economist
When economists examine a choice, they pay attention to several features. First, they identify who is making the choice. The decision-maker might be an individual, a family, a business, a government, or another organization.
They also examine the constraints affecting the decision. A constraint is something that limits the available choices. Time, income, available workers, land, equipment, laws, and other conditions can all constrain what a decision-maker is able to do.
Economists then consider the alternatives available. A decision makes more sense when it is considered alongside the other possibilities available to the decision-maker. Rather than looking only at what someone chose, economists want to understand what that person, business, or government was choosing among.
Finally, economists investigate what follows from the choice. A decision can affect the decision-maker as well as other people. Economists use evidence and data to study these results, identify patterns, and understand how people respond when circumstances change.
These questions give economists a common way to examine decisions:
Who is making the choice?
What constraints exist?
What alternatives are available?
What follows from the choice?
Because economic thinking can be applied to many kinds of decisions, economics is a broad field. Some economists focus on the choices of individuals and businesses. This area is known as microeconomics. Others study the economy as a whole, examining issues such as unemployment, inflation, economic growth, and investment. This area is known as macroeconomics.
Economists also specialize in areas such as labor, public policy, finance, international trade, education, health, energy, and the environment. They work in businesses, banks, government agencies, universities, and many other organizations. They may analyze data, evaluate programs and policies, study human behavior, explain economic relationships, or predict how people might respond to changing conditions.
Despite this variety, these economists share a way of thinking. They study choices and the conditions in which those choices are made. By identifying decision-makers, constraints, alternatives, and the impacts of those decisions, economists can investigate questions that extend far beyond money and finance.