What Is Economics

Economics is the attempt to understand the choices that a person or indeed a society as a whole makes, why he does so, and what the outcome of that choice maybe. In its essence, economics is a social science that studies ‘rational choice under conditions of scarcity’ (Tomlinson). Therefore, economics can be defined, as a study of the rational choices made in distribution of scarce resources to meet our unlimited wants.

There are some limiting factors to what is and isn’t part of economics. Mises describes only human actions to be considered by economics. Economics looks at the human condition as making a choice to allocate scarce resources towards alternative uses. “Pairs get fed” a remark by Frederick Bastiat in response to the natural phenomenon that he observed where buyers and sellers acting in their own interest, without intending to, factor in the social cost and benefit of their choices. Adam Smith described this as offering due to the forces of demand and supply; the metaphoric “invisible hand” as he put it. Even without intending to we can see how economics is integrated in to our everyday lives.

The two main contributions in this almost all-encompassing science are the Neoclassical and the Austrian schools of economic thought. Austrian school is more subjective and advocates completely Laissez Faire approach to the economy. The cornerstone of Austrian school of thought; also shared by neoclassical economics, is Methodological Individualism. This suggests that all economic phenomenon can be explained by tracing back to the actions of individual agents. Austrian economics also pioneered the concepts of opportunity cost and hold the view that all production and consumption decisions are taken at the margin (Marginalism) and reflect time preference.

On the other hand essence of neoclassical school of thought can be found in Lionel Robbins’ (1932) definition of economics as the “science which studies human behavior as a relationship between given...