What is economics: a first step into the science of choosing between limited money and unlimited wants

Aziza, a student, has 50 000 soum in her purse. She needs a new book, she wants to go to the cinema with her friends, and her bus fare has to last until the end of the week. There is not enough money for everything, so something has to be given up. After thinking it over, Aziza put the cinema off until next month and bought the book. At that moment she made an economic decision.

What is economics?

Economics (the science of the economy) is the science that studies how people, businesses and the state allocate limited resources among unlimited needs. That is why it is often called the science of choice.

Key ideas:

• Scarcity: nobody has enough resources for everything, not even a rich country.
• Choice and giving up: choosing one thing means giving up another. By buying the book, Aziza gave up the cinema.
• Market: the place where sellers and buyers meet; here the price is formed through demand and supply.

Economics is studied at two levels: microeconomics looks at the decisions of an individual family, shop or business, while macroeconomics looks at the overall indicators for the whole country; one of them is the general rise in prices, that is, inflation.

Where does the word come from?

According to some dictionaries, the Uzbek word «iqtisod» was borrowed from Arabic. Its meanings are very instructive: the Rekhta dictionary of Urdu explains this word as thrift, keeping to measure, the golden mean and economics. The classical Arabic dictionary (E. W. Lane) explains «muqtasid», a word formed from the same root, as a person who keeps to the way between extravagance and stinginess. In other words, the word itself recalls the advice "do not overspend, keep to the middle way".

The word ekonomika (English economy), used in many languages, took a different path. According to the Online Etymology Dictionary, it comes from the Greek word oikonomia "household management, thrift": oikos "house" and nomos "managing". The history of this word and what ancient philosophers said about the household is told in detail in a separate article on the site: «The roots of the word "economics": what did Xenophon and Aristotle say about the household?».

Two different languages, the same idea: economics is about managing one's household (or country) wisely and without waste.

Why it is needed: its function and purpose

The main purpose of economics: to explain how to get the most benefit from limited resources and to help foresee the consequences of the decisions of people, businesses and the state. This knowledge comes in handy in the following:

1. For everyday decisions. Aziza's purse, the family budget, a shop owner setting prices: all of these are economic choices.
2. To understand prices. Why are tomatoes expensive in winter and cheap in summer? The answer lies in demand and supply.
3. For business. How much to produce, at what price to sell, where to cut costs: an entrepreneur settles this with economic thinking.
4. To understand the news. A person who knows what lies behind words such as "inflation", "GDP" and "interest rate" protects their money better.

Who it works with and who contributed

Economic thinking is needed by the accountant (cost analysis), the finance specialist (investment decisions), the entrepreneur (price and volume) and government bodies (policy).

History articles on the site about the thinkers who contributed to this science: «Ibn Khaldun and the Muqaddimah: the higher the tax, the fuller the treasury?», «Adam Smith and the classical school: how did a book of 1776 turn economics into a science?» and «Keynes and the 20th century: when should the state intervene in the economy?». The links are at the end of the page.

In the next lesson

In the second lesson we will get to know demand and supply, that is, how a price arises in the market, using a simple example.