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In many respects, economics is more similar to social sciences such as psychology and sociology than hard sciences such as chemistry and physics. 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 towards increasing levels of mathematical sophistication and model-based regression forecasting, but the building blocks remain 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, Value and Economic Calculation

Economic actors engage in transactions that they anticipate will make them better off. If a consumer buys a loaf of bread for $3, he is implicitly stating that he values the bread more than $3. The seller, by offering the load for $3, is implicitly stating that the $3 is more valuable than the bread.

Presumably, the general market for bread in the area suggests that $3 is a sufficient price to entice businesses to undergo bread creation and assume risk. This also means that wheat farmers are sufficiently compensated, that 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 his 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.

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 25-inch television in 2020, for example. A basic understanding of human action can help economists identify meaningful tendencies in resource allocation, however.

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