Let us understand Economy and Economics :
- If we observe our day-to-day life, each and every activity and existence mostly depend on various activities that involve sale and purchase (also called the exchange of goods and services), production or manufacturing of goods, distribution of goods and services, etc, and these human activities which are performed in exchange for money or money’s worth are called “Economic Activities”.
- Living in society also means that we must know how to organize our lives in a perfect manner. The foremost and fundamental objective of economic activity is the production of goods and services to make them available to the people so that they can satisfy their material needs. Hence we can say that the “Economy provides a platform for such activities which includes all the supporting set of factors and sources to realise the aims and objectives.”
- We must know how to economise our precious time and scarce resources and also learn how to manage time because in the present scenario time is money. For example, when we make our budget for our monthly/annual expenses for our home; we try to utilise the resources available to us in the best possible manner. And, we can ignore the subtle hurdle or futile needs in this way. This way of Management of households is called “Economics” but the concept is much more than making a Budget.
- The term ‘Economics’ is derived from two Greek words OIKOS and NEMEIN, meaning the rule of law of the household. A study of economics can be defined as all aspects and domains of a country’s economy, like how a country utilizes its resources, the contribution of laborers towards work and leisure, the return on investment in industries or financial arrangements, the positive and negative impacts of taxes on its people, etc.
- Thus, a country also pertaining to the process by which the productivity of these resources can be further enhanced and with the factors which in the past have led to sharp fluctuations in the rate of utilization of resources.
- Thus, Economics is the branch of social science that deals with the study of making decisions in the presence of a scarcity of resources in the economy, particularly with regard to human activities such as production, consumption, saving, and investment.
- In the true sense, Economics is an interdisciplinary subject that addresses both positive (fact-based) and normative (value-based) issues.
How do we define Economics?
Economics is a social technological know-how that studies the manufacturing, distribution, and consumption of goods and services. It examines how people, agencies, governments, and societies make choices approximately allocating resources to fulfill their wants and needs.
Adam Smith, often taken into consideration as the father of modern-day economics, described economics because of the “Science of Wealth.” In his influential work, “An Inquiry into the Nature and Causes of the Wealth of Nations” posted in 1776, Smith explored the ideas of monetary increase, department of exertions, and the function of markets in producing wealth.
Alfred Marshall, a distinguished economist of the late nineteenth and early 20th centuries, shifted the focus of economics from wealth to welfare. Marshall’s definition states that economics is the examination of mankind inside the ordinary business of life, inspecting character and social movements that are intently connected with accomplishing and the usage of fabric requirements for properly being.
It’s essential to observe that those definitions constitute specific perspectives inside the field of economics. Over time, economics has advanced and extended to encompass numerous faculties of concept, including neoclassical economics, Keynesian economics, behavioral economics, and many others. Each faculty emphasizes distinctive factors and techniques to knowledge of economic behavior and phenomena.
Main streams of Economics – Micro and Macro Economics :
- ‘Political Economy’ was the earlier term used for the field of economics, but economists in the late 19th century suggested “economics” as a shorter term for “economic science” to establish itself as a separate discipline outside of political science and other social sciences.
- Economics has two main streams – Microeconomics and Macroeconomics. Through these two major fields, economists analyze how economies work and affect – the market, business, government, people, and other parts of society. Economic theories are based on extensive studies and analyses.
a) Microeconomics :
- In microeconomics, we analyze and study the behavioral pattern of individual economic agents in the markets for different goods and services and;
- try to observe and find out how prices or costs and quantities of goods and services are determined through the interaction of individuals in these markets.
b) Macroeconomics :
- In macroeconomics, on the other hand, we observe a broader view, an understanding of the economy as a whole by focusing our attention on aggregate measures such as total output, employment, and aggregate price level.
- Here, we are more inclined toward finding out how the levels of these aggregate measures are determined and how the levels of these aggregate measures change over time.
- Some of the important questions that are studied in macroeconomics are as follows:
- What is the level of total output in the economy?
- How is the total output determined?
- How does the total output grow over time?
- Are the resources of the economy (eg labor) fully employed/utilized?
- What are the reasons behind the unemployment/underutilization of resources?
- Why do prices rise?
Thus, instead of studying the different markets as is done in microeconomics, in macroeconomics, we try to study the behavior of aggregate or macro measures of the performance of the economy.