Introduction

Study Material > Economics

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

Microeconomics is the branch of economics which study about individuals, households and firms behaviour in decision or choice making and allocation of resources. It deals with the market of goods and services.
Microeconomics analyzes

What are the effects of individual’s choice on goods price, goods supply and demand.

Macroeconomics

Macroeconomics is the branch of economics that studies whole economy. It deals with changes in the economy like 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.
Resources of our world are limited however our wants are unlimited so fulfil our wants in the limited resources are the main work of studying economics.
It provides a framework through which one can understand the decisions taken by individual, government, big institutions etc.
Economics is a tool to understand conditions of society so that economic stability, inflation control, low unemployment to be maintained by different policies of the government.

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. Few challenges of the economics are mentioned below:

Population of a country is always varying and its demographic profile also varies. Hence demographic profile of the increasing population is a challenge in the study of economics.
Today energy related problems are also becoming main problem and challenges of the economy. Energy crisis and related environment problems are becoming worse day by day.
Poverty of masses and a large number of peoples under poverty lines are a big challenge to the economy.
Globalisation is also a new emerging challenge to the economy.
Global health crisis are today becoming challenges in a new dimension.

Types of economy

Traditional economy

Traditional economies produce products and services that are based on rituals, habits or customs. A vast portion of world is still under traditional economy and they tend to be ruler, second or third world.
In this type of economies no production of modern world is practised. However they practise traditional economic activities like, fishing, hunting, agriculture, gathering etc.
These 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.
No modern currency is used in this type of economy. They uses mostly barter system for exchanging and fulfilling their needs.
They produce only according to their needs.

Command economy

In command economy a large part of the economic system is under government control.
In this economy market forces have no role because government takes decision of production. What to produce, how much to produce, and what should be the price of the goods, these all things are decided by government.
Central planning is one of the prominent features 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.
Mostly communist government follows this type of economy. Example of Such type of economies is former Soviet Union, Cuba, North Korea etc.
In these economy managers, planners and workers have poor incentives and hence their motivations and creativity are low.
Moreover choices are also limited because there were no market competitions.
Supporters of this economy say that there is fair distribution in comparison to other types of economy in which profit making are main aim.

Free market economy

Government has very little interference in this type of economy and these types of economy run on market principle.
Law of demand and supply regulates the markets.
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.
In free market economy a large part of resources of the country were owned by the private sectors.
In this economy there was no boundary for any one for joining in economic activity. Economic activity is open for everyone.
United States and Australia come close to this type.

Mixed economy

This is a type of economy system in which both the private enterprise and state monopoly coexist.
In production and control both public and private sector works according to shared percentage.
It is also called as dual economy because of the presence of both public and private sector in production. Ex: India etc.
We can also say that mixed economy contains the element of both Capitalism and Socialism. As it takes the good part of both the type of economy for the welfare of peoples.
In Capitalism experts says that welfare of the people are neglected and Capitalists produces only those items which seems profitable to them hence ignoring mass requirements.
Where as in Socialism experts says that all the control of production is in the hands of government due to which growth of economies is slow. However welfare is optimum for the masses as government produces items which are necessary for the masses.

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