A:

In many respects, economics is more similar to social sciences such as psychology and sociology than physical sciences such as chemistry and biology. Economics (particularly microeconomics) is ultimately concerned with why, when and how human beings trade with each other. Different schools of thought have taken the field toward increasing levels of mathematical sophistication and model-based regression forecasting, but the building blocks continue to be human actors and their behaviors.

Consider the laws of supply and demand in economics. When placed on a microeconomic chart, it looks as though price is determined through a mechanical adjustment based on the quantity of a product and the number of buyers in the market. In reality, a price is the agreed-upon level at which a seller is willing to part with a good and the buyer is willing to assume it. Consumers have to compete with other consumers when bidding for a good. Producers have to compete with other producers for those consumers. It's the actions of individual actors that determine economic reality – not the other way around.

The field of economics attempts to understand the patterns of individual decisions within the context of a world that has scarce resources.

Human Action and Determining Value

Economic actors will regularly engage in transactions that they anticipate will make them better off. If a consumer buys a loaf of bread for three dollars, he/she is implicitly stating that they value the bread more than three dollars. The seller, by offering the loaf for three dollars, is implicitly stating that the three dollars are more valuable than the bread.

Presumably, the general market for bread in the area suggests that three dollars is an acceptable price to entice businesses to become bread retailers and assume the associated risks. This also means that wheat farmers are sufficiently compensated, transportation is economically feasible and hundreds (if not thousands) of other human actions can be coordinated in a sustaining way.

Each actor in the chain of financing, production and consumption is receiving enough value to entice their cooperation. To save time, economics studies the price rather than breaking down every single trade, transaction and motivation. The root is a huge series of human value judgments and behaviors. The price, in a sense, economizes on the information.

Analyzing and Understanding Human Behavior

Economics appears to be superficially concerned with abstractions such as demand curves, production possibilities frontiers or interest rates. None of those inputs actually exist in a tangible sense. However, the root is always individual human action. Every actor is simultaneously coordinating his activities in a meaningful, value-driven way. Those values and actions are dynamically captured through broad economic indicators and subsequently analyzed.

Human action cannot be predicted with any certainty. No economist knows how much any single consumer will be willing to pay for a 50-inch television in 2024, for example. A basic understanding of human action can help economists identify meaningful tendencies in resource allocation, however.

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