Economics, colloquially referred to as Econ, is a social science with a mid-sized academic department at Carleton College, offering about more than 30 courses. It is the study of human behavior as producers and consumers, particularly in situations that can be modeled, and often assuming that all humans are "rational," that is, that they behave so as to maximize their benefit from every situation.
Areas of study
Economics is commonly divided into two categories: microeconomics and macroeconomics. These form an introductory course sequences that is required before taking more advanced Econ classes. Economists, including Carleton faculty members, tend to specialize heavily in one of the two areas.
Microeconomics is the study of consumers and firms within individual industries. It emphasizes theory and rationality, often using real world data only to confirm the implications of sophisticated mathematical models based on simple assumptions.
Supply and demand
In common parlance, supply and demand are abstract concepts. However, in microeconomics, each is a mathematical function: supply is the amount of a good that will be produced at a given price, and demand is the amount of a good that will be purchased at a given price. Normally, more of a good will be produced at a higher price, and less of a good will be produced at a lower price. For example,
- <math>Q_s = 500 * P - 200 \,</math>
- <math>Q_d = -300 * P + 100 \,</math>
where <math>Q_s</math> is the quantity supplied, <math>Q_d</math> is the quantity demanded, and P is the price. Then we can find the equilibrium price at which <math>Q_s = Q_d</math> by simple algebra:
- <math>Q_s = Q_d \Rightarrow 500 * P - 200 = -300 * P + 100 \,</math>
- <math>\Rightarrow 200 * P = 800 * P - 300 = 0 \Rightarrow 800 * P = 300 \,</math>
- <math>\Rightarrow P = 300/800 = 3/8 = 0.375 \,</math>
At this point, the number of units sold equals the number of units bought, and the market behaves efficiently. This simple framework can be used to analyze the effects of taxes on a market and the effects of monopoly power. The difficult part is applying it to real markets, where supply and demand cannot be precisely measured. This problems is studied in Econometrics.
Macroeconomics is the study of currency, inflation, and interest rates in large markets. It is more empirical than microeconomics, with a less tidy framework. It answers such questions as "What effects do interest rates have?" and "Why can't governments generate wealth by simply printing more money?"
- Thorstein Veblen, though not an Econ major, is nonetheless the pride of the department, and one of Carleton's most famous alumni. His book A Theory of the Leisure Class (1899) was very influential and coined the term "conspicuous consumption."