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What is Economics?
There are many studies that are vital to mankind and human societies. Some of these studies focus on the resources, production of goods and services, growth of welfare over time, and all other associated topics. This is a science we popularly call economics.
What is Economics?
Economics deals with the production, distribution, and consumption of goods and services. It is a form of social science that looks after the well-being of societies as nations. Economics considers the allocation of resources as the choices of individuals, businesses, and governments that impact the demand and supply of these resources.
The aim of economics is to determine the most logical and efficient use of resources so that the production, distribution, and consumption of resources can be most accurately and effectively used in society.
Economics covers a whole range of topics that range from production to employment, investment and savings, money and its uses, healthcare, and banking systems, government, and its policies, taxation, and spending, industry, and trade, international relations, urbanizations and environmental issues, and use of proprietary rights and other legal issues, etc. Therefore, it can be stated that economics is more than just money or resources. It covers all the aspects of the allocation of resources and the forms of allocation that make societies work in tandem with one another. Economics makes it possible to effortlessly deal with production and consumption functions and allows individuals, businesses, and governments to deal with the allocation of resources and control the societies that are known as economies.
It must be noted that when we say about resources in economics, we indicate the scarcity of resources. As resources are always limited, economics offers ways to deal with resources in the best manner possible. In this sense, economics is the social science that makes efficient use and allocation of resources possible.
Scope of Economics
The scope of economics is very vast in nature. From small firms to global organizations and the governments of large countries, all of these rely on economics to best allocate resources and meet the needs of the societies.
To better understand the scope of economics, it can be divided into two sections, namely:
Microeconomics deals with individual economic activities, industries, and their interactions.
It has the following characteristics:
Elasticity: Elasticity determines the change in the proportion of one variable in relation to the change in another. Therefore, there must be two factors in interaction to consider them under microeconomics. Examples include income elasticity of demand and price elasticity of supply.
Theory of Production: It is related to the efficient conversion of input into output. The factors that are considered under the theory of production include production, packaging, storing, shipping, manufacturing, etc.
Cost of Production: Cost of production theory helps to evaluate the price of resources.
Monopoly: Monopoly refers to the dominance of a single entity in a field of study.
Oligopoly: Oligopoly corresponds to the dominance of many entities in a market or field of study.
Macroeconomics is a study of a broader economic system as a whole. It offers broader aggregates in a top-down manner.
The characteristics of macroeconomics are the following:
Growth: It refers to the growth of the economy or increase in output per capita of a nation over a period of time.
Business Cycle: The business cycle came into the forefront of consideration after the great depression of the 1930s. It advocates the presence of a central bank or a government entity to control the economic activities of an economy. In general, government bodies are required to devise fiscal policies and monetary guidelines to control and monitor the output over a business cycle.
Unemployment: The unemployment rate is a major consideration in macroeconomic terms. It is measured by the unemployment rate and is caused by increasing wages and shortfall in job vacancies etc.
Inflation and deflation: Inflation is the rise of prices of commodities in the market of a nation while deflation is a decrease in prices. These factors are important to measure the health of an economy.
Functions of Economics
There are mainly three functions of economics which are the following:
Production: Production refers to the creation of a good or service. It is a valuable measure because it determines the power of an economy to create value and earn from other economies. When production is above the requirement of an economy, it can export the products to earn valuable income. Production is also related to manufacturing. The more the production of an economy the better the chances for it to fare well.
Consumption: Consumption is also a basic feature and function of an economy. Consumption is a factor related to expense and hence the total consumption of an economy must be below total production in order to to make the economy self-reliant and sustainable. However, consumption is also related to demand and more consumption is directly related to more demand in the market of an economy.
Growth: Growth is the most desired factor for an economy. An economy may grow when it produces valuable items that can be provided to other economies where there is a demand and earn profits from them. For this to happen, economies must produce more than their own requirement of a product. As growth is the most needed attribute of economies, many economies rely on their available resources and raw materials to sell them to other economies and buy products that are not available in their own economy. The net balance decides the growth.
Importance of Statistics in Economics
Statistics plays a vital role in expressing economic values. As statistics deals with the collection, analysis, interpretation, organization, and valuation of data, economic measurements are done well with the help of statistical terms. The relationship between quantity and price, economic output, supply and demand, Gross Domestic Product (GDP), per capita income of countries, etc., are some terms that can be calculated using statistics.
Statistical formulas can also be used to derive economic functions. Mean, mode, average, regression, etc., are some of the tools that can be used for economic calculations. Statistics, therefore, helps economics to get the quantity form of a particular economic indicator and hence cannot be separated from economics.
Economics is a subject that has a vast effect on human welfare. It is a subject that offers the ideas of organizing societies and meeting the demands. Without economics, mankind cannot live an organized life as it is doing nowadays. With the help of economic indicators, social justice and peace are finalized.
Therefore, economics is one of the most important subjects for mankind now and it is relevant to all aspects of humanity.
Q1. Is economics a relevant subject for the 21st-century world?
Ans. Yes. Economics is unavoidable in the 21st century. With the advent of technology and the increase in globalization, the meaning and scope of economics have grown many times. It is indispensable for the well-being of 21st century societies.
Q2. Which form of economics is well-suited for individuals?
Ans. The form of economics that is suitable for individuals is known as microeconomics.
Q3. What are the three main functions of economics?
Ans. The three main functions of economics are production, consumption, and growth.
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