Economics Facts for Kids

Economists study how people make decisions, like what to buy at a market.

São Paulo's stock exchange. Here, people trade using technology, not face-to-face.

Economics is a social science. It studies how people make choices to get what they want. It's all about understanding scarcity (not having enough of something) and choice. Economics also looks at how things are made, shared, and used in a country.

It deals with money, jobs, and how countries grow. Modern economics started to take shape in the 1800s. People wanted to study it like a science, using facts and observations.

Who is Involved in Economics?
What Do Economists Study?
Basic Rules of Economics
A Brief History of Economics
Main Types of Economics
Famous Economists
Related Topics
Images for kids
See also

Who is Involved in Economics?

In economics, we study different groups of people and organizations. These are called subjects or actors.

Households

Households are families and individuals. They offer their skills and resources for work. This includes their time, land, and tools (like machines or buildings). In return, they get income. They use this income to buy things they need and want.

Businesses

Business companies make and sell goods and services. They also buy resources from households and other companies. Think of a company that makes shoes or offers a cleaning service.

The Government

The government, or state, includes public organizations. The government collects money from businesses and households. It uses this money to pay for public goods. These are things everyone can use, like streets or education.

Foreign Countries

This includes all the households, businesses, and governments outside of our own country. They buy and sell goods and services with our country. This is called international trade.

What Do Economists Study?

Economists study different types of goods and resources. These are called objects.

Consumer Goods

These are things people buy to use themselves.

Usage goods are used up quickly, like gasoline or toilet paper.
Purpose goods last longer, like a house or a bicycle.
Services are actions performed for you, like a doctor's visit or a cleaning service.

Capital Goods

These are goods needed to produce other goods. Examples include buildings, equipment, and machines. A factory building is a capital good because it helps make products.

Factors of Production

These are the basic resources used to make goods and services. They include:

Work (people's effort and skills)
Land (natural resources)
Capital (tools, machines, buildings)
Information (knowledge and technology)
Environment (natural surroundings)

Basic Rules of Economics

Economists have found some general rules about how people make choices.

Choices are Everywhere: Everyone has to choose between different options. You can't have everything.
The Real Cost of Things: The cost of something is what you give up to get it. This is called opportunity cost. For example, if you buy a video game, you give up the chance to buy a book with that same money.
People Respond to Incentives: People react to things that encourage them. If something becomes more attractive, more people will choose it. For instance, if a store has a sale, more people might buy things.
Trade Helps Everyone: When people trade, both sides can end up better off. You might trade your old comic book for a friend's toy you really want.
Markets Are Usually Good: Markets are often the best way to organize economic life. In a free market, people and companies make their own small decisions. This often leads to good results for everyone. This idea is sometimes called the "invisible hand" of the market.
Government Can Help: Sometimes, prices don't show the full cost or benefit to society. For example, air pollution is bad for everyone. Education is good for everyone. The government can use taxes to discourage bad things. It can also support good things, like giving money for schools.
Living Standards and Skills: A country's living standard depends on how well it can produce goods and services. Productivity means how many goods are made compared to the total work hours.
Understanding Inflation: When there is too much money in circulation, or when it costs more to make things, prices go up. This is called inflation. This means your money buys less than it used to.

A Brief History of Economics

Economics has changed a lot over time. Here are some important periods and ideas:

18th Century: People started to seriously study how countries become wealthy.
- Physiocracy: An early idea that wealth came mainly from land and agriculture.
Classical Economics: Ideas from thinkers like Adam Smith. They focused on free markets and how they work.
Marxist Economics: Ideas from Karl Marx. He focused on how workers were treated and the differences between social classes.
Austrian Economics: This school of thought emphasizes individual choices and free markets.
Neoclassical Economics: This is a widely used approach today. It looks at how people make choices based on costs and benefits.
Welfare Economics: This branch looks at how economic decisions affect the well-being of society.

Economists are often influenced by the times they live in. For example, Karl Marx saw very poor conditions for workers. John Maynard Keynes lived during the Great Depression of the 1930s. Today, economists learn from past ideas to make better judgments.

Main Types of Economics

The two biggest branches of economics are microeconomics and macroeconomics.

Macroeconomics looks at the economy as a whole. For example, it studies if a country's wealth grows or if many people lose their jobs.
Microeconomics looks at smaller, more specific things. It studies how families spend money or how a single business operates.

There are many other interesting areas of economics too:

Behavioral economics: How psychology affects economic decisions.
Development economics: How to help poorer countries grow.
Environmental economics: How economic activity affects the environment.
International economics: How countries trade with each other.
Labor economics: How jobs and wages work.

Famous Economists

Many smart people have shaped our understanding of economics.

Adam Smith: Often called the "father of economics." He believed in free markets.
Thomas Malthus: He wrote about how a large population could negatively affect the economy.
Karl Marx: He wrote The Communist Manifesto. He supported communism, an idea about shared ownership.
John Maynard Keynes: He created a very popular economic theory called Keynesian economics.
Milton Friedman: He wrote a lot about how the amount of money in a country (the money supply) affects the economy.

Other important economists from the 19th and 20th centuries include Friedrich August von Hayek, Wassily Leontief, N. Gregory Mankiw, Carl Menger, and Léon Walras.

Images for kids

A 1638 painting of a French seaport during the time of mercantilism, an early economic idea.
John Maynard Keynes (right) was a very important thinker in economics.
A map showing the main trade routes in Europe during the late medieval period.
An Environmental scientist taking water samples. Environmental economics looks at how our actions affect nature.
The unemployment rate in the US from 1990 to 2022. This is a topic for macroeconomics.
A map showing the wealth of different countries in 2022.