Economics is the study of production and consumption of goods and the transfer of money concerned with the stated activities. It may also be said that the study of economics explains how people accomplish their goals in the marketplace. It may also be defined as the description of financial aspects of a project, firm or business, etc. Simply put, economics is the science that explains the production, consumption and distribution of goods and the financial matters associated with these.
Economics elaborates on how individuals make ends meet by making use of the limited resources that are available to them. Economics can be classified into two different kinds – Microeconomics and Macroeconomics.
The factors that affect individual economic choices may be placed under the umbrella of Microeconomics. This means that the study concerned with the behaviour of individuals within an economy is known as Microeconomics. The term individuals may refer to a person, firm, industry or household.
Microeconomics may also be described as the study of the decisions that individuals and businesses make regarding the production and consumption of goods and relevant financial matters. Microeconomics is concerned with supply and demand, which influence the price levels in an economy.
Macroeconomics, on the other hand, is concerned with the study of the behaviour of the economy as the whole. Hence, it not only includes the study of individuals, businesses and companies but all the other factors as well. This means that it takes a much broader view by incorporating the economic activities of an entire country or sometimes even the global marketplace. Simply put, the economic decisions of a country and its government may fall under the umbrella of macroeconomics.
To sum up, microeconomics is the study of the behaviour of the individuals pertaining to their economic choices. Macroeconomics, on the other hand, may be defined as the study of the decisions concerned with an entire economic system of a country, government or even the international marketplace. (2)
The economic evolution
Economics is not a modern day discipline. The use and study of economics is an on-going process since the beginning of time. With the need of more goods and resources required by the people, more and more people eventually got involved in the production and consumption of goods. Along with this came the need to manage the financial aspects associated with the goods being produced for the people.
Since the beginning of time economics played a critical role in the lives of the people and is therefore considered an important aspect in the modern world. For instance, the very first people used the barter system for the consumption of goods, and this was the origin of the field of economics.
The Barter system
The Barter system is a trade in which people can obtain goods that are required by exchanging the goods that they currently own. Economics originated in the beginning of time with the origin of the Barter system. With the increase in the needs and demands of the people and less advancement in the world, people needed a way to fulfil their needs. The barter system proved to be beneficial and affected the evolution of economics with its origin. The barter system affected the economy hence it was when people decided the need of production of goods as per the requirements of the people.
The Barter system came into play long before money was invented. The problem with this system was that the people were unable to form trust which eventually led to the need for a better economic system.
Modern economic system
The modern economic system is far more evolved than the barter system. Today the demands of the people are being answered but the distribution of goods being done in a fair and efficient manner. The modern economic system focuses on the needs of a society and not the individual needs of the people.
Applying economic theories
Over the last few decades, the field of economics is evolving drastically. The sole purpose of economics is the production of goods and services to satisfy the needs of people. Another important purpose of economics is to shed light on financial matters that are related to the production of these goods and services.
Supply and demand
Supply and demand in an economy are the two major aspects that need to be taken care of. The supply of the production and consumption of goods must be equivalent to the demand of the products by the people and economy. In supply and demand, pricing of goods also plays a crucial role. The prices and quantities of goods are observed to keep the supply and demand at a perfect equilibrium in the market economy. With a stable supply and demand, no community or government will have to face the trouble of scarcity of goods.
Providing insight to the people
The study of economics has numerous purposes and is considered to be quite useful. It provides people with an insight into how domestic and even foreign markets work. To give the people a much better idea of what goes around in the market is utmost important so that they are better able to understand what goes around in the global marketplace. (3)
Stable distribution of resources and goods
One more important purpose of the study of economics is to stabilise the distribution of resources and goods. To have equality in the society, the distribution of resources must also be done in an efficient manner, and this can only be done by having a clear idea if the demands of the people.
The modern approach of economics has changed dramatically since the 20th century. The field of economics has gone through a remarkable expansion since then. The needs of the people are increasing day by day, and it is important to understand not all of these needs can be met. The government and the economists today have become more and more conscious to make sure that the scarce resources are distributed in an efficient way for the consumption of majority of the people. The aspect that concerns the economists the most today is the fact that the resources are quite scarce or at least limited. Therefore, their modern approach is for these resources to be distributed equally and efficiently among the people.
With the expansion of world economy today, the economists have also gained remarkable name and importance in the industry. In the modern world today, economists are employed in large numbers in various places such as private industry, government and higher education sectors. The effect of the modern approach towards economics also effected economics as a discipline. Many subjects like political science and sociology that were once regarded as a part of economics have now become separate disciplines. This is because economics itself today has become vast and complex discipline due to the expansion of world economy.
The modern perspective and the modern approach to economics may have improved the world economy, however; there are still some challenges faced by economists every day. The demands of the people are increasing with each passing day and the measures being taken to meet those needs are also taken care of side by side. Even after the constant struggle, there are still some very basic challenges that are being faced in the field of economics every day. (4)
The main problem in the global economy is the fact that the resources are limited or scarce; this is a crucial challenge that may cause a disturbance in the world economy. Resources can be limited in two ways:
- Limited quantity of resources
- Limited use of important equipment
Limited quantity of resources
Economics is the study of production, consumption and distribution of goods. The main challenge in the field of economics is the limited quantity of resources provided to the people. The main agenda of the economists today is to distribute the available resources in an efficient manner. However, as the needs and demands of the people increase with each passing day, it is becoming difficult for the resources to be distributed as per their needs. The first crucial challenge faced in the field of economics is the scarcity of the resources.
Limited use of important equipment
All societies may face a few economic problems in order to make use of the limited resources in the best possible way. The main problem arises when the endless needs and wants of the people are not met due to limited resources. There are several reasons that may lead to the production of limited resources, and one very crucial drawback is the limited use of equipment.
Sometimes the equipment used in the production of resources is only useful for one purpose at a time; this may become a crucial problem and cause disruption in the production of goods. If the production is effected due to the limited use of the machinery, then the consumption and distribution of goods will also be affected hence causing the economic problem. The modern economic system focuses on how to make the best use of limited and scarce resources. (4)