Economics is a social science that is at once very broad in its subject matter and unified in
its approach to understanding the social world. An economic analysis begins from the
premise that individuals have goals and that they pursue those goals as best they can.
Economics studies the behavior of social systems – such as markets, corporations,
legislatures, and families – as the outcome of interactions through institutions between
goal-directed individuals. Ultimately, economists make policy recommendations that they
believe will make people better off.
Traditionally, economics has focused on understanding prices, competitive markets, and the
interactions between markets. Important topics such as monopolies and antitrust, income
inequality, economic growth, and the business cycle continue to be central areas of inquiry
in economics. Recently, though, the subject matter of economics has broadened so that
economists today address a remarkable variety of social science questions. Will school
vouchers improve the quality of education? Do politicians manipulate the business cycle?
What sort of legal regime best promotes economic development? Why do cities have
ghettos? What can be done about grade inflation? Why do people procrastinate in saving for
retirement – or in doing their homework?
In understanding what economics is, it is crucial to keep in mind that economics today is a
scientific discipline. Bringing their particular perspective to the questions of social science,
economists formulate theories and collect evidence to test these theories against
alternative ideas. Doing economic research involves asking questions about the social world
and addressing those questions with data and clear-headed logic, employing mathematical
and statistical tools whenever appropriate to aid the analysis. An undergraduate education
in economics focuses on learning to analyze the world in terms of tradeoffs and incentives –
that is, to think like an economist.