Economics is the social science that studies how humans make decisions in the face of scarcity, the production, distribution, and consumption of goods and services. These can be individual decisions, family decisions, business decisions, or societal decisions.

Economists analyze problems differently than do other disciplinary experts. The main tools economists use are economic theories or models. A theory is not an illustration of the answer to a problem. Rather, a theory is a tool for determining the answer. We can organize societies as traditional, command, or market-oriented economies. Most societies are a mix. The last few decades have seen globalization evolve as a result of growth in commercial and financial networks that cross national borders, making businesses and workers from different economies increasingly interdependent.

The economic way of thinking provides a useful approach to understanding human behavior. Economists make the careful distinction between positive statements, which describe the world as it is, and normative statements, which describe how the world should be. Even when economics analyzes the gains and losses from various events or policies, and thus draws normative conclusions about how the world should be, the analysis of economics is rooted in a positive analysis of how people, firms, and governments actually behave, not how they should behave.

Economic systems

  • Closed or open economy, which does not engage or maintain exchange relationships with other systems.
  • Collectivist or planned economy, a centralized economic system in which the means of production are owned by the community and in which decisions regarding production, investment and consumption are made by the central authority.
  • Controlled economy, in which, although there is private ownership of the means of production, it is up to the central authority to control and direct production and exchange activities.
  • Mixed economy, in which private initiative and public initiative coexist.
  • Market or liberal economy, in which private ownership exists and production and exchange are left to free initiative.
  • Mature economy, developed economic system.
  • Dual economy, in which there are simultaneously developed areas and backward areas, i.e. in which identical factors of production, in different parts of the system, have different marginal productivity.
  • Economy of scale, the gain, in terms of production and cost, resulting from an increase in productive and organizational efficiency. Given the prices of production factors, economies of scale are realized when a certain increase in production implies less than proportional increases in cost.
  • Economies can be internal or external, depending on whether they are achieved within the firm (for example, through plant expansion) or whether they are due to factors external to the firm (for example, the development of the branch of industry to which the firm belongs or of industry in general). They are monetary if they result from changes in the price of production factors or raw materials.
  • War economy, a particular organization of the economic system of a country during wartime, characterized by an accentuated state control over all productive activity, in particular over the supply and use of productive factors, with a view to providing above all for military needs rather than civilian ones.

Agricultural, artisan, industrial, commercial, domestic economy, designation of an economic system in which the prevailing productive activities are respectively agriculture, handicrafts, industry, commerce, and household.

Related keywords


  • Principles of Economics 2e. OpenStax. Authors: Steven A. Greenlaw, David Shapiro.