Econified

The field of economics is the study of decision-making. There are only so many resources in this world, so economics seeks to explain how these are allocated. Because there are so many different resources and perspectives, economics is split into many different fields. The most common distinction in economics is between macroeconomics and microeconomics. Macroeconomics and microeconomics have different perspectives on how to look at the economy.

Macroeconomics focuses on issues that have wide impacts on the entire economy. Common topics include GDP, unemployment, and inflation. Macroeconomics seeks to explain why economic policies are made, and it also seeks to explain happenings in the market.

Microeconomics studies issues at the individual person or firm level. Microeconomics differs because it focuses on how small a segment of people or firms will act or react to economic conditions. Microeconomic conclusions can then be applied to larger populations to see macro results. However, conclusions found at the micro level are not always true across the entire economy.

Macroeconomics and microeconomics are fields of study, but they are more general economic principles. To get a better understanding of certain outcomes in the economy, there are more nuanced fields of study that rely on macro and micro economic theories. Any field can be studied from either a macroeconomic or a microeconomic perspective. Also, a lot of these fields have intersecting topics because economic issues are often interrelated. Here is a fairly common list of the different fields of study within economics:

International Economics: This can also be referred to as trade economics or international trade economics. This field of study focuses on how different economies interact with each other, specifically when it comes to trade. International economics delves into policies like specialization, tariffs, and immigration. This field of economics is most commonly viewed using macroeconomic theories since trade and foreign policy have impacts on the entire economy. Some microeconomics can be utilized to understand how a single firm or individual would react to policies or economic conditions.

Labor Economics: This field of economic study focuses on the health of the labor market and why people choose to work. A key principle in labor economics is that people choose to work because the wages they receive are worth more than the value that they receive for not working. This is a particularly interesting field of economics since it studies both a micro perspective of why people choose to work as well as trends in the entire labor market through a macro lens. Labor economics also studies wages. Generally speaking, labor is seen as having a constant amount of supply regardless of the wage rate. This would mean that wages are determined by the demand for labor rather than the supply. Labor economics also looks into policies such as minimum wages laws and their positive and negative impacts on outcomes. This would also be the field where union activity would be studied.

Economics of Crime: The economics of crime is fascinating because criminals also think about their decisions in ways that can be explained by economics. Crime tends to fall when there is a higher likelihood of getting caught or the punishment for criminals is worse. This change in action resulting from these external factors signals that criminals do examine the payoffs of their actions, either consciously or subconsciously. This field of economics hopes to help identify why crime is occurring and what can be done to minimize crime and its negative impact on the economy.

Financial Economics: This field of economics focuses on the study of how resources are allocated in financial markets. This field examines stocks and other market indicators; it attempts to explain why certain outcomes are being observed. This field can help examine market risk, and it also helps to predict how markets will grow. From a macro perspective this field examines all firms and how the economy will react to market conditions. A micro perspective would examine how an individual firm would make decisions based on the financial environment.

Health Economics: This field of economics examines the healthcare industry. This includes topics like hospitals, insurance, and pharmaceuticals. This industry is significantly different from other industries because the burden of paying for these services is on insurance companies. This creates interesting incentives for healthcare organizations and consumers because the dynamics are so unique. This is why there is a whole field of economics dedicated to this study.

Sports Economics: This is the field of economics that studies sports teams and how consumers and firms make decisions in this industry. This field of economics is similar to sports business as it attempts to explain why certain organizations make decisions such as hiring and firing coaches, what prices occur in the market, and other sports related topics. This is a very interesting field since the sports industry is unique, and success really comes from marketing and alignment with fanbases.

Education Economics: Education economics focuses on how education is provided, and the decisions of households and policymakers regarding the education industry. Education economics studies all levels of education from kindergarten to PhD. The reason why individuals choose to pursue more education is often an economic decision where payoffs are assessed for extra schooling. Additionally, policymakers are interested in what choices make their school systems more effective for their students. This type of economics seeks to answer a lot of very differing questions, and this field can be further broken up to study specific outcomes at different levels.

Public Economics: The public sector in the economy refers to the government. This is why public economics focuses on studying the effects government policies and decisions have on the market. Government taxes and purchases have the ability to slow down or speed up the entire economy. Additionally, government-enforced price ceilings or floors are also policies that can impact the market’s outcomes. This type of economics is almost always viewed from a macro perspective because government policies tend to have impacts on the entire economy.

Environmental Economics: This is the field of economics that focuses on environmental issues. This field looks into externalities, which are negative byproducts resulting from a firm or individual’s actions. An example of an externality is a company polluting the environment as a byproduct of their operations. Internalizing these externalities is one way to help mitigate these adverse actions damaging the environment. Internalizing just means having the company feel the negative effect that they are having on the environment. For example, a company that pollutes may be charged a tax for the pollution it creates. This tax represents the cost of the externality, and the company now has to pay that tax for their actions. This will cause them to pollute less. There are several other environmental issues that this field covers, but the goal is to better understand why there are negative environmental impacts and how to mitigate them.

Money and Banking: This field of economics dives into the impact of interest rates on markets, and it examines the effects of the Federal Reserve’s actions. The Federal Reserve has many different tools to affect the economy. The Federal Reserve utilizes lessons learned from money and banking theories to choose the right tool to solve whatever problem the economy faces. This field also examines the concept of money. For a long time, the U.S. economy used a gold-standard for the economy. This meant that money directly translated into a certain amount of gold. This is no longer the case. Money and Banking studies the impacts different types of money have on the economy as a whole. Money and Banking also explores bank policies and activities.

Development Economics: This type of economics focuses on developing economies. The goal is to help find ways to improve the quality of life for smaller or growing countries. Development Economics looks for ways to lower inequalities and boost overall output. This can be through the study of government policies, foreign aid, utilization of resources, or increasing human capital.

Behavioral Economics: This type of economics seeks to understand why people make the decisions they make. A lot of people make decisions that other economic models deem to be irrational. The reason behind this is because humans do not do economic analysis in our heads. Humans act irrationally all the time, and behavioral economics seeks to understand why. Cognitive biases, risk and loss aversion, and other psychological conditions lead humans to act irrationally. This type of economics will allow a better understanding of why we act irrationally and the impact of this irrationality on our decision-making. This type of economics is closely related to psychology, significantly more than traditional economic theory. Behavioral economics is the merging of the psychology behind decision-making and the economic results that come from those conclusions.

Game Theory: This study of economics focuses on how certain choices are made. This is similar to behavioral economics, but typically economists studying game theory believe that individuals and firms will act rationally in their decisions. A set of options are presented, and the goal of game theory is to figure out how people will respond to the options. The equilibrium is where everyone is maximizing their own payoff in reference to what they believe other people’s decisions will be. This is an intuitively complicated field of economics, but it does closely correlate with behavioral economics.

Personnel Economics: Personnel economics is similar to labor economics except it is more focused on how to motivate employees rather than studying why there are certain outcomes in the labor market. This type of economics dives into team dynamics, incentives, and individuals’ behaviors regarding how they work. A key tenant of Personnel Economics is the principal-agent problem. The principal could be a boss or a company owner, and the agents are the people who work for the principal. The principal wants their agents to act in a certain way, and Personnel Economics seeks to explain how to do this. There is a lot of psychology in this field of economics since it directly deals with motivation, but it is far more closely linked with economics because this field assumes that people will act rationally to incentives.

Econometrics: This is not necessarily a field of economics; it is more of a way that economists make predictions about market outcomes. Econometrics utilizes statistics and mathematics to build models. These models seek to predict and explain through regressions or other data analysis tools. Econometrics can be used within any field of economics for research. Econometrics can show correlations in data, but a key focus is to show causation. For example, economists want to know if minimum wages laws cause more unemployment. They can set up an experiment then utilize that data with Econometrics to decide if there is or is not a causal relationship between minimum wage laws and unemployment.

This list highlights some of the different fields of economics that can be studied, and it shows how diverse economics can be. Economists generally need to be very familiar with macro and micro principles, but, once they have that understanding, they are able to branch out and study anything that interests them. Some of these fields are more prevalent than others, but they are critical in understanding all aspects of the economy.