What is Economics?

Economics:

Economics is a subject that shouldn’t only be studied by students or teachers but is essential for everyone. Breaking down the word, “Economics” comprises “Eco” and “Nomics.” “Eco” is derived from the Greek word “oikos,” meaning household, and “Nomics” comes from the Greek word “nomos,” which means laws and management.

So, economics is essentially about managing either a household or a country. However, the main focus of economics is studying human activities related to wealth. For example, if I am doing a non-wealth-related activity like cleaning or drawing, it is not studied in economics. Similarly, if there’s a teacher who is teaching at a school and receiving a monthly income deposited in the bank, that falls within the realm of economics. Here, wealth is involved, so it falls within the scope of economics. However, after some time, if that same teacher gets married, stops teaching, and is now managing household chores without any money transactions, those activities wouldn’t be considered in economics.

In simple terms, economics involves making decisions with limited resources, whether at the level of an individual household or a whole country. In the context of a household, our resources, including income, are limited, while our needs and wants are unlimited. Similarly, from a country’s perspective, the desire to produce unlimited goods is hindered by limited resources, such as labor, capital, and land. Economics guides us on how, while dealing with these constraints, individuals or economies can fulfill their unlimited needs and wants by efficiently using their limited resources.

Economy vs Economics:

In economics, many people mistakenly consider the terms “economy” and “economics” to be the same and use them interchangeably, but they are entirely different. “Economy” refers to a country’s financial conditions; for example, when we talk about India’s economy, we are referring to the economic factors such as inflation, policies, unemployment, and GDP. On the other hand, “economics” is a subject where we study the economic factors of any economy. Economics explains how factors like inflation, unemployment, and income impact an economy.

Needs vs Wants:

In economics, the terms “needs” and “wants” are frequently used, and many people mistakenly perceive them as synonymous, leading to confusion. However, these two words are entirely distinct.

“Needs” refers to the necessities essential for an human’s life, without which they cannot sustain themselves. These include basic requirements like bread, water, a house, and clothes. On the other hand, “wants” encompass luxuries in our lives. For instance, the need might be to make a phone call and stay connected, so a simple mobile phone without advanced features fulfills that need. In contrast, a smartphone with numerous features would fall into the category of wants, as those features go beyond the basic necessity of communication.

Goods vs Services:

Without understanding the terms “goods and services,” one cannot study economics. Goods and services are anything that satisfies the needs and wants of a person.

Goods are tangible and physical, whereas services are intangible and abstract. Goods refer to physical products that can be touched, stored for some time after production. Not everything that is produced and consumed immediately qualifies as a good. In contrast, services encompass intangible activities such as teaching, nursing, cooking, haircutting, and many other activities. Services are heterogeneous, meaning they vary because humans provide them, and each individual’s service differs. Furthermore, services are inseparable and perishable; they cannot be separated or stored for later use

Positive Economics vs Normative Economics:

In economics, the information provided falls into two categories: Positive and normative. Positive economics deals with facts that can be verified, such as stating the population of Germany is 83.2 million. On the other hand, normative economics involves opinions and suggestions, which cannot be verified. For example, a statement like “the government should implement a quality control policy” falls under normative economics as it represents an opinion or advice.

Types of Economics:

Economics, as we discussed, guides the management of households or countries. Economics is broadly divided into two main categories: Microeconomics and Macroeconomics.

Microeconomics, where “micro” refers to small, concentrates on the behavior of individual entities like households. For instance, when discussing income, microeconomics focuses on an individual’s income.

On the other hand, Macroeconomics, where “macro” implies large or extensive, examines the aggregate behavior of an entire country. It addresses issues such as inflation, unemployment, and national income on a broader scale.

Economics is an extensive subject with significant relevance to our daily lives and the effective management of a country. A key solution to enhancing a country’s economy is to thoroughly study economics. Basic knowledge of economics, including familiarity with common economic terms, should be essential for everyone. When studied with interest and focus, economics becomes a highly interesting subject.

 

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