- Economics is a study of producing valuable commodities using resources which are scarcely available and distributing the produced material among different people.
- In other words Economics is a study of efficient production, distribution and consumption of goods and services.
- Economics comes from the Greek word oikonomia which is made up of Oikos means house and Nomos means custom or law meaning rules of the household.
- Economics is concerned with assessing scarce resource and making choice of goods and services which are to be produced accordingly to satisfy the various needs and want of the society.
- Branches of economics : Economics has been divided into two main branches :
- Microeconomics is the study of individuals, households and firms behavior in decision making and allocation of resources. It generally applies to markets of goods and services and deals with individual and economic issues.
- One goal of microeconomics is to analyze what choices people make, what factors influence their choices and how their decisions affect the goods markets by affecting the price, the supply and demand.
- Macroeconomics is the branch of economics that studies the economy as a whole. It is concerned with aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation.
- Most important aim of studying macroeconomics is to analyze the causes and consequences of short-run fluctuations in national income and the determinants of long term growth in national income.
Essence of economics
- Economics involves studies of wide range of topics, issues and theories, but what has been the focus of Economics?
- Essence of Economics is to make our life better and improve our living condition.
Challenges of the economics
- The main challenge of the economy is to cope up with the needs of its population. The needs of any population start with food, shelter and cloth and after that demands increases. Hence fulfilling the demands of different sector of population which are a never ending process is the main challenge of Economics.
Types of economy
- There are four primary types of economic systems in the world:
- Traditional economy
- Free market economy
- Command economy
- Mixed economy
- Traditional economies produce products and services that are based on rituals, habits or customs. A vast portion of world are still under traditional economy and they tend to be ruler, second or third world. This types of economies exist among tribes in Amazon and aborigines in Australia etc. One of the most important advantages of these types of economies is that tradition and custom is preserved.
- A large part of the economic system is under government control. Central planning is one of the prominent feature of this economy. As the government control these system there is no competition and hence consumers have very little choices. Often the government owns everything from production to distribution. Example of Such type of economies is former Soviet Union, Cuba, North Korea etc.
Free market economy
- Government has very little interference in this type of economy and these types of economy run on market principle. Production and distribution units are under private ownership. Due to presence of large number of players a fierce competition exists and consumers have many choices. United States and Australia come close to this type.
- This is a type of economy system in which both the private enterprise and a degree of state monopoly coexist. Means of production are shared between the public and private sector. Also called dual economy. Ex: India etc.
- Market failure: It consists of a situation in which the allocation of goods and services is not efficient. There exists a mismatch between demand and supply.
- Economy cycle: The fluctuation in economic activity that an economy experiences over a period of time. There are five stages in a economy cycle - growth, peak, recession, trough and recovery.