What is Economics?
Economic issues and methods
Economics is one of the social sciences. Any society has to address the problem of how and what to produce for its material survival, and how goods and services which are produced should be distributed among its population. Economists explore how people and institutions behave and function when producing, exchanging and using goods and services. Our main motivation is to find mechanisms which encourage efficiency in the production and use of material goods and resources, while at the same time producing a pattern of income distribution which society finds acceptable.
Many of the problems which dominate our newspaper headlines are economic problems. Why are some countries poor with very low growth rates while a small number of countries enjoy high living standards and high growth rates? What is the role of international trade, and the movement of capital from one country to another, in explaining these global inequalities? Why are some countries so much more successful at creating employment or reducing unemployment than other countries? Within countries, why do some people earn so much more than others, and what are the best ways to tackle and reduce poverty? Is it possible to pursue economic growth and still protect our natural and physical environments? How should governments try to raise the finance needed to pay for health and education services and income support programmes? What is the proper role for government in the economy? Would we be better off with much lower taxes but also poorer social services than we presently enjoy?
Calling economics a social science also reflects the way economists analyse problems, in that economists aim to develop theories of human behaviour and test them against the facts. These theories are summarised in economic models which define the relationships between variables which we believe best explain the events we observe. An important part of the work of an economist is collecting and analysing observations about economic phenomena - prices, employment, costs, Gross Domestic Product - what we call data. The art of the economist is to blend together theory, data and statistical techniques to arrive at a new understanding of economic problems or to make policy recommendations which hopefully will improve the welfare and living standards of our society.
Microeconomics and macroeconomics
A fundamental feature of the world we live in is scarcity. We cannot all of us have all of the things we would like all of the time, we are forced to make choices. Economics studies the way society organises itself to make choices about what goods and services to produce (how do we decide how much food to produce versus how many houses or how many haircuts?). It also studies how we produce these goods and services (how firms are organised) and who receives these goods and services (the distribution of income). In modern industrialised societies most of these decisions are made through markets. For example, food markets link together consumers shopping in supermarkets with farmers who produce food; if consumers increase their demand for organic foods, food markets send this signal (in the form of a higher price) to provide an incentive to farmers to switch to growing more organic food. Other examples of markets in a modern economy are financial markets (which link savers and investors), labour markets (which link employers and employees), the housing market (which links those looking for housing accommodation with the builders of houses or the suppliers of rented accommodation), transport markets (which link travellers with those providing transport services), energy markets (which link energy suppliers with consumers of energy) and so on. Microeconomics is that branch of economics which studies the behaviour of individual markets and of decision-makers - consumers and firms - within these markets. Each individual market has its own unique characteristics, determined in part by the degree and nature of government regulation. Think of the Dublin taxi market, or the market for charter holidays, or the market for legal services. What determines prices in these markets? Do these markets work efficiently? Is the nature of government intervention in these markets appropriate? These are the sorts of questions asked by microeconomists.
The other main branch of economics is macroeconomics. Macroeconomics is concerned with the behaviour and functioning of the whole economy. Macroeconomists work with questions such as what determines the overall growth rate of an economy and what policies would be effective in trying a raise an economy's growth rate? What determines the overall rate of price inflation in any economy and how might governments try to maintain price stability? Macroeconomics became the dominant interest of economists between the 1950s and 1970s largely due to two factors: first, the development of national income accounts which allowed us to systematically measure national economic performance for the first time; and secondly, the belief, stimulated by the work of the English economist John Maynard Keynes, that governments had both the duty and the ability to seek to stabilise the growth of the overall economy in order to avoid both damaging recessions and high unemployment, on the one hand, and inflation and price increases, on the other hand. Today, many economists have lost faith in the ability of governments to successfully intervene in a discretionary way at the macroeconomic level, but this remains an area of active debate and research among the economics profession.
The objective of the Economics programme at Trinity is to introduce students to the main currents of modern economic thinking through a blend of courses in economic theory and applied economic problems as well as providing the necessary skills in statistics and quantitative methods to be able to understand and undertake empirical economic research. If you are interested, why not explore the variety of courses which the Department offers in each of the four years of the undergraduate programme?