What is Economics?

What is Economics classroom photo

Imagine you are a Martian arriving from outer space on planet Earth. After landing you start to observe earthlings engaging in the production and exchange of goods and services. Goods and services are produced by combining factors such as labor, machinery, and land. Most of the goods are produced by private firms, but some are provided by government agencies. Goods are typically exchanged against money and the exchange takes place in markets. We could go on and on. 

At first glance, this looks all pretty complicated and messy. One of the goals of economics as a social science is to discover some fundamental patterns that underlie this hustle and bustle, by quantifying and recording all the activities that take place, and by devising formal theories that help to predict the behavior of individuals in various circumstances. These theories can then be used to think about ways of organizing exchanges, and more generally, about economic policies that ensure an efficient allocation of the goods and services that are being produced. In order to stimulate economic activity, is it better to lower taxes or to raise spending? How should health care services be provided and health insurances be organized? What are advantages and disadvantages of common currencies like the Euro?

Alright, that was all quite abstract. Here is a more concrete question that economic theory can help to answer. Movie theaters tend to charge the same price regardless of the popularity or genre of the movie (incidentally, universities tend to do the same if you convert the tuition into a per-course fee…), or the time that has passed since the initial release of the movie. Why is that? Would you be willing to pay a premium to watch a good movie? What would happen to movie attendance and theatre revenue if pricing were dependent on popularity or genre?

While you can read about economic issues in newspapers and blogs, you will find out from taking courses at Penn that the approach taken by academic economists tends to be rigorous and quantitative than the approach taken in the popular press. You would probably expect that from the natural sciences, but it is true for the social sciences as well. To get a sense of economic science, check out the list of Nobel Prize winners in economics. By following the links there, you can read more about the path-breaking contributions that the prize winners have made.   

If you would like to find out more about Penn’s undergraduate program in economics, just explore our web pages and read about the various offerings.