SAT II Subject PREP

Economics is a social science concerned with the factors that determine the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, pronounced eekos, “house”) and νόμος (nomos, “custom” or “law”), hence “rules of the house (hold for good management)”.’Political economy’ was the earlier name for the subject, but economists in the late 19th century suggested “economics” as a shorter term for “economic science” to establish itself as a separate discipline outside of political science and other social sciences.

Economics focuses on the behaviour and interactions of economic agents and how economies work. Consistent with this focus, primary textbooks often distinguish between microeconomics and macroeconomics. Microeconomics examines the behaviour of basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production, consumption, savings, and investment) and issues affecting it, including unemployment of resources (labour, capital, and land), inflation, economic growth, and the public policies that address these issues (monetary, fiscal, and other policies).

Other broad distinctions within economics include those between positive economics, describing “what is”, and normative economics, advocating “what ought to be”; between economic theory and applied economics; between rational and behavioural economics; and between mainstream economics and heterodox economics.