Economics is a science. I know…boring, right?
But it isn’t really, because it’s the science behind human decision making.
See, the main reason for the study of economics is that the world’s resources are scarce. This means that the things we buy and sell and use aren’t unlimited. For example, there’s not an infinite number of wheat in the world. And it takes time to produce more. So, we have to make decisions on how to best allocate these limited resources. We have to decide what to do with that wheat and how much it should cost.
Economics is the study of those decisions.
There are two different perspectives when it comes to economics: microeconomics and macroeconomics.
Macroeconomics looks at a nation’s economy as a whole. You can think of macroeconomics as a “zoomed out” view of how an entire country allocates its resources.
Microeconomics, on the other hand, is a “zoomed in” view of the economy, looking at the decisions made by individual people and individual businesses.
The next steps will go through some of these factors, both macro and micro, and how they affect the stock market.
Adam Smith is considered the “father of modern economics”. In the 18th Century, Smith tried to understand why some nations prospered while others lagged behind and suffered from poverty. He coined the phrase “the invisible hand of the market”, which is used to describe the self-regulating effects of the market. In other words, he believed that if governments left the markets relatively free of control, everything would work itself out.