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What Is It?

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Economics is the science that deals with the production, allocation, and use of goods and services. It is important to study how resources can best be distributed to meet the needs of the greatest number of people. As we are more connected globally to one another, the study of economics becomes extremely important. While there are many subdivisions in the study of economics, two major ones are macroeconomics and microeconomics. Macroeconomics is the study of the entire system of economics. Microeconomics is the study of how the systems affect one business or parts of the economic system.

History of Economics

The first writings on the subject of economics occurred in early Greek times as Plato, in The Republic, and Aristotle wrote on the topic. Later such Romans as Cicero and Virgil also wrote about economics.

In medieval times the system of feudalism dominated. With feudalism, there was a strict class system consisting of nobles, clergy and the peasants. In the system, the king owned almost all the land and under him were a series of nobles that had land holdings of various sizes. On these landholdings were series of manors. These were akin to large farming tracts in which the peasants or serfs worked the land in exchange for protection by the nobles.

Later the system of mercantilism predominated. It was an economic system of the major trading nations during the 16th, 17th, and 18th centuries, based on the idea that national wealth and power were best served by increasing exports and collecting precious metals in return. Manufacturing and commerce became more important in this system.

In the mid eighteenth century, the Industrial Revolution ushered in an era in which machines rather than tools were used in the factory system. More workers were employed in factories in urban areas rather than on farms. The Industrial Revolution was fueled by great gains in technology and invention. This also made farms more efficient, although fewer people were working the farms. During this time the idea of “laissez faire” became popular. This means that economies work best without lots of rules and regulations from the government. This philosophy of economics is a strong factor in capitalism, which favors private ownership.

In the nineteenth century, there was reaction to the “laissez-faire” thinking of the eighteenth century due to the writings of Thomas Malthus. He felt that population would always advance faster than the science and technology needed to support such population growth. David Ricardo later stated that wages tend to settle at a poor or subsistence level for most workers. John Stuart Mill provided the backdrop for socialism with his theories that supported farm cooperatives and labor unions, less competition. These theories were brought to a high point by Karl Marx who attacked the capitalistic, “laissez-faire” theories of competition and instead favored socialisms, marked more government control and state rather than private ownership of property.

Another important idea at this time was the change in how items are valued. While formerly an item’s value stayed the same according to what the item was, now the worth of an item was determined by how many people wanted the item and how great the supply of the item was. This was the beginning of the laws of supply and demand.

In the first half of the twentieth century, John Maynard Keynes wrote about business cycles – when the economy is doing well and when it is in a slump. His theories led to governments seeking to put more controls on the economy to prevent wide swings.

After World War II, emphasis was placed on the analysis of economic growth and development using more sophisticated technological tools.

In recent years, economic theory has been broadly separated into two major fields: macroeconomics, which studies entire economic systems; and microeconomics, which observes the workings of the market on an individual or group within an economic system. In the later twentieth century such ideas as supply side economics which states that a healthy economy is very necessary for the health of the nation and Milton Friedman’s ideas that the money supply is the most important influence on the economy were favored.

In the twenty-first century, the rapid changes and growth in technology have spawned the term “Information Age” in which knowledge and information have become important commodities.


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