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What is Economics?

The science of choice

Economics is the study of how people behave… and specifically how they make choices.

  • Governments make choices about how much to spend and how to deliver healthcare or education; they choose which countries to trade with, and on what terms; and how to regulate carbon emissions and pollutants.
  • Firms choose what to produce, what price to set, whom to hire, and how much to spend on research and development.
  • Most people also face choices: what to buy, where to work, whether to have children, whether to pay bribes or cheat on their taxes, whether and how much to save for the future.

These choices are often constrained because of limited resources, including money, time, and information. Economics studies what determines what choices are made …and it doesn’t assume that everyone always acts rationally. Economists also study the effects of choices, looking to understand and build evidence on what happens in the real world.

Economics helps us to understand how the world works… and how to make it a better place. It is at the heart of understanding the major social problems of our time, including climate change, inequality, poverty, health care, an ageing population, obesity, and globalisation. Effective solutions to these problems require economic insights.

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What questions are economists asking?