Written and maintained by CASRAI Editorial Board
Last updated
Economics is the social science that studies how individuals, businesses, governments, and
societies allocate scarce resources — labor, capital, land, time, and money — among
competing uses. It asks a small set of deceptively simple questions with enormous practical
consequences: what should be produced, how should it be produced, and who gets it? Every
economy on Earth, from a subsistence household to a global trading system, answers those
questions somehow; economics is the discipline that studies the mechanisms — markets, prices,
institutions, government policy, and individual choice — by which they get answered, and asks
whether the outcomes are efficient, sustainable, and fair.
This guide answers “what is economics” in real depth: its core questions and methods, how it
developed historically, its major subfields, how it relates to neighboring disciplines, and —
because this page is published by CASRAI, a research-administration
standards body — the funding landscape, research methods, and career pathways that matter to
anyone conducting or administering economics research specifically.
What Is Economics? A Working Definition
At its core, economics is the study of choice under scarcity. Because no
society has unlimited resources, every decision to use a resource one way is simultaneously a
decision not to use it another way — the value of that forgone alternative is what economists
call opportunity cost, one of the field’s foundational concepts. Economics
studies how individuals, firms, and governments make these trade-offs, and how their choices
aggregate into the larger patterns we call markets, industries, and economies.
Economists conventionally split the discipline along two axes:
- Microeconomics vs. macroeconomics — microeconomics studies the behavior of
individual households, firms, and markets (how a single price is set, why a firm hires one more
worker); macroeconomics studies economy-wide aggregates (national output, inflation,
unemployment, economic growth) and how they interact. - Positive vs. normative economics — positive economics describes and predicts
what actually happens (“a minimum wage increase of this size is associated with this change in
employment”); normative economics makes value-laden judgments about what should happen (“the
minimum wage should be raised”). Most economic research aims to be positive — testable and
falsifiable — even when it ultimately informs normative policy debates.
A recurring theme across both branches is that markets coordinate the choices of many
independent actors through prices, which carry information about relative scarcity and value.
Much of economic theory studies when that coordination works well (produces efficient outcomes)
and when it breaks down — the study of “market failure,” including externalities, public goods,
information asymmetries, and market power, is itself a major and enduring area of the field.
How Economic Thought Developed
Economics has a long intellectual history, and understanding its major turning points helps
explain why the modern field looks the way it does:
- Classical economics (late 1700s–1800s). Adam Smith’s An Inquiry into the
Nature and Causes of the Wealth of Nations (1776) is conventionally treated as the
discipline’s founding text, introducing ideas like the division of labor and the notion that
self-interested exchange in a market can coordinate production without central direction (the
“invisible hand”). David Ricardo, Thomas Malthus, and John Stuart Mill extended classical theory
through the early-to-mid 1800s, developing ideas such as comparative advantage in trade. - The marginal revolution (1870s). William Stanley Jevons, Carl Menger, and
Léon Walras, working independently, reframed value around marginal utility — the
satisfaction gained from one additional unit of a good — rather than the labor required to
produce it. This “neoclassical” turn introduced the calculus-based, optimization-driven approach
that still underlies most microeconomic theory today. - The Keynesian revolution (1930s). John Maynard Keynes’s The General
Theory of Employment, Interest and Money (1936), written in the aftermath of the Great
Depression, argued that aggregate demand — not just individual markets clearing on their own —
drives short-run output and employment, and that government fiscal policy can and should respond
to demand shortfalls. This launched macroeconomics as a distinct sub-discipline and shaped
mid-20th-century economic policy across much of the world. - Formalization and mathematical economics (mid-20th century). Economists
such as Paul Samuelson helped translate economic reasoning into explicit mathematical models,
and the postwar decades saw the rise of econometrics — the statistical estimation and testing of
economic relationships in real-world data. - Rational expectations and the “credibility revolution” (1970s–present).
Later developments include rational-expectations macroeconomics associated with Robert Lucas,
the rise of behavioral economics (Daniel Kahneman and Amos Tversky’s work on cognitive biases in
decision-making), and — from the 1990s onward — a shift in empirical economics toward research
designs that support causal, not just correlational, claims: natural experiments, randomized
controlled trials, and quasi-experimental methods like difference-in-differences
and regression
discontinuity design. Economists sometimes call this shift the “credibility revolution” in
applied microeconomics.
How Economics Relates to Neighboring Disciplines
Because scarcity and choice are so pervasive, economics sits at the boundary of several other
fields, and the boundaries are genuinely porous:
- Political science. Political economy studies how political institutions,
voting, and public choice shape economic outcomes, and vice versa — see CASRAI’s guide to political science for how the two
fields divide the study of collective decision-making. - Psychology. Behavioral economics imports experimental findings about
cognition, judgment, and decision-making from psychology to relax the traditional assumption of
a fully rational economic actor. See CASRAI’s guide to psychology. - Sociology. Economic sociology studies the social structures, networks, and
institutions embedded in economic activity — markets as social constructions, not just price
mechanisms. See CASRAI’s guide to sociology. - Computer science and mathematics. Game theory, mechanism design, and
computational economics sit directly at the intersection of economics and computer science,
particularly in auction design and algorithmic market design. See CASRAI’s guide to computer science. - Neuroscience. Neuroeconomics is a genuine, if smaller, interdisciplinary
field that uses neuroscientific methods to study the biological basis of economic
decision-making, risk, and reward — see CASRAI’s guide to neuroscience. - Epidemiology and public health. Health economics — the study of
healthcare costs, insurance markets, and the cost-effectiveness of interventions — overlaps
substantially with epidemiological methods and data. See CASRAI’s guide to epidemiology. - Statistics. Econometrics shares its statistical foundations — regression,
causal inference, hypothesis testing — with biostatistics and applied statistics more broadly,
even though the two fields developed largely independent methodological traditions. See CASRAI’s
guide to biostatistics.
What distinguishes economics from all of these is its persistent organizing framework:
modeling how self-interested (or boundedly rational) agents make constrained choices, and how
those choices aggregate through markets, prices, and institutions.
Major Subfields and Branches of Economics
Economics is a large discipline with many recognized subfields. The major ones include:
- Microeconomics — individual and firm decision-making, market structure
(competition, monopoly, oligopoly), consumer theory, and production theory. - Macroeconomics — national output, inflation, unemployment, business cycles,
monetary and fiscal policy, and long-run economic growth. - Econometrics — the statistical methods used to test economic theories and
estimate economic relationships from data; the discipline’s primary empirical toolkit. - Behavioral economics — incorporates psychological realism (cognitive
biases, bounded rationality, social preferences) into economic models of choice. - Labor economics — wages, employment, unemployment, labor supply and
demand, human capital, and labor-market institutions such as unions and minimum-wage laws. - Public economics (public finance) — taxation, government spending, social
insurance programs, and the theory of when government intervention improves on market
outcomes. - Development economics — the economics of low- and middle-income countries:
poverty, growth, institutions, and — increasingly — randomized field experiments testing
specific anti-poverty interventions. - International economics — international trade theory and policy,
exchange rates, and the macroeconomics of open economies. - Financial economics — asset pricing, corporate finance, banking, and the
economics of financial markets and institutions. - Industrial organization — firm behavior, market structure, competition
policy, and antitrust economics. - Health economics — healthcare markets, insurance, provider behavior, and
the economic evaluation of health interventions. - Environmental and resource economics — externalities, natural-resource
management, and the economics of climate policy. - Economic history — long-run quantitative and qualitative study of past
economies, often using historical data to test economic theory. - Political economy — the economics of political institutions, collective
decision-making, and the interaction between economic and political power.
Who Funds Economics Research
Economics research is funded through a mix of federal science agencies, mission-specific
government agencies, and private foundations — understanding this landscape matters for
research administrators supporting economics faculty and PhD students:
- National Science Foundation (NSF). The primary federal funder of basic
economics research in the US. NSF’s Economics Program is one of the core
programs within the Division of Social and Economic Sciences (SES), itself part of the
Directorate for Social, Behavioral and Economic Sciences (SBE). SES’s other core programs —
including Decision, Risk and Management Sciences and Methodology, Measurement and Statistics —
also regularly fund economics-adjacent research. - Mission agencies. Several federal agencies fund economics research tied to
their own mission rather than through a general-purpose science program: the U.S. Department of
Agriculture’s Economic Research Service funds and conducts agricultural and
rural economics research; other agencies (e.g., the Social Security Administration, and health
agencies for health-economics work) fund economics research relevant to their own policy
questions on a program-specific basis. - The Federal Reserve System. The Federal Reserve Board and the twelve
regional Federal Reserve Banks employ economists and produce a substantial share of applied
macroeconomic and monetary-economics research in the US, published through working-paper series
rather than a competitive grant program. - Private foundations. The Russell Sage Foundation funds
social-science research under core priorities that explicitly include “Social, Political and
Economic Inequality.” The Alfred P. Sloan Foundation maintains a dedicated
Economics program area focused on the economics of science, technology, and labor markets. Some
philanthropies with a broader mission — for example the Bezos Earth Fund —
maintain an economics/markets-focused program area within their environmental funding portfolio.
Research administrators should verify current program scope and deadlines directly with each
funder before advising a PI, since foundation priorities and cycles change. - Research organizations. The National Bureau of Economic Research
(NBER), a private nonprofit, is not primarily a grant-making body but is the discipline’s
central hub for disseminating working papers and organizing collaborative research programs;
some NBER-affiliated research centers do administer specific funded initiatives (for example,
retirement- and disability-research programs funded by federal agencies).
As with any funding landscape, program scope, budgets, and priorities shift — research
offices should confirm current guidelines directly on each funder’s own site before an
application, rather than relying on a general overview like this one.
Research Methods and Tools in Economics
Modern economics is a heavily empirical, quantitative discipline. Common methods and tools
include:
- Theoretical and mathematical modeling — formal models (often using
calculus, optimization, and game theory) that derive testable predictions from a set of
assumptions about how agents behave. - Econometrics and causal inference — regression analysis applied to
observational and experimental data, with a strong emphasis on distinguishing correlation from
causation. Common causal-inference designs used across economics include randomized controlled
trials, instrumental variables, difference-in-differences,
and regression
discontinuity design — all of which CASRAI covers as standalone research-methods guides. - Discrete choice and stated-preference methods. Discrete choice models — the
statistical framework underlying much of applied microeconomics and marketing research — trace
back to econometric work on travel-mode choice; CASRAI’s guides on discrete
choice experiments and conjoint
analysis cover the design and analysis of these methods in more depth. - Experimental economics — controlled laboratory experiments that test
economic theory (bargaining, auctions, public-goods games) under controlled conditions. - Administrative and survey data — large government or institutional
datasets (tax records, census data, national accounts, labor-force surveys) are the raw material
for most empirical economics; increasingly, economists also work with proprietary data from
firms and platforms under data-use agreements. - Computational and agent-based modeling — simulating economies as
populations of interacting agents, used where closed-form theoretical solutions aren’t
tractable.
Career and Training Pathways
Economics has one of the more structured, internationally standardized training pipelines
among the social sciences:
- Undergraduate. A bachelor’s degree in economics typically covers
microeconomics, macroeconomics, statistics/econometrics, and calculus, and serves as
preparation for graduate study, government, or private-sector analytical roles. - Doctoral training. A PhD in economics in the US typically takes around
five to six years: the first one to two years cover core theory and econometrics coursework
culminating in qualifying exams, followed by supervised original dissertation research (usually
three self-contained papers rather than a single monograph, which is the norm in many other
social sciences). - The academic job market. Economics has an unusually centralized, calendar-
driven academic hiring process: PhD candidates apply broadly in the fall, interview at a winter
conference organized around the American Economic Association (AEA)‘s annual
meeting, and largely resolve offers within a few months — a structure distinctive enough that
other social-science disciplines have periodically studied it as a model. - Professional societies. The American Economic Association
(AEA), founded in 1885, is the discipline’s principal professional society in the US,
publishing flagship journals including the American Economic Review and running the
centralized “Job Openings for Economists” listing service. The Econometric
Society, an international society founded in 1930, publishes Econometrica and
focuses specifically on the intersection of economic theory and statistics/mathematics. - Career destinations. PhD economists work across academia, central banks
and finance ministries (e.g., the Federal Reserve System, the U.S. Treasury), international
organizations (the World Bank, the IMF), statistical agencies (e.g., the Bureau of Labor
Statistics), think tanks, and — increasingly — the private sector, particularly in finance,
consulting, and technology companies that hire economists for pricing, market design, and
causal-inference work traditionally associated with academic applied microeconomics.
Frequently Asked Questions
What is the difference between microeconomics and macroeconomics?
Microeconomics studies the decisions of individual households, firms, and markets;
macroeconomics studies economy-wide aggregates like national output, inflation, and
unemployment, and how they interact. Most economics curricula treat them as the two core,
complementary halves of the discipline.
Is economics a science?
Economics is conventionally classified as a social science: it uses systematic theory and
empirical testing, much like natural sciences do, but studies human behavior and social systems
rather than physical phenomena, and often cannot run fully controlled experiments on an entire
economy — which is part of why causal-inference methods (natural experiments,
quasi-experimental designs) play such a central methodological role.
What is the difference between economics and finance?
Economics is the broader discipline studying resource allocation, markets, and
decision-making across the whole economy; finance is generally treated as an applied subfield
focused specifically on the pricing of assets, investment, corporate capital decisions, and
financial markets and institutions. Many university finance departments grew directly out of
economics departments and share substantial methodological overlap.
What jobs can you get with an economics degree?
Undergraduate economics degrees lead to roles across finance, consulting, government
analysis, and business; a research-focused PhD opens academic positions plus research roles at
central banks, international organizations, government statistical agencies, think tanks, and
increasingly technology and finance firms that hire economists specifically for causal-inference
and market-design expertise.
What math is required for economics?
Undergraduate economics typically requires calculus and introductory statistics;
econometrics-heavy and PhD-level economics requires substantially more — linear algebra, real
analysis, probability theory, and optimization — since most modern economic theory and
econometric estimation is built on that mathematical foundation.
Related CASRAI Resources
This guide is part of CASRAI’s Branches of Science series, which maps
the major academic and scientific disciplines along with the research-administration context —
funding, methods, and career pathways — that a general encyclopedia entry typically omits.
Related discipline guides include political science, psychology, sociology, and computer science, plus biostatistics, epidemiology, and neuroscience for the fields that
overlap most closely with economics’ quantitative and behavioral methods.
