In general terms, Economics is the study of the production, distribution, and consumption of wealth and other resources in human society. The term economy is all about money being made and the money being spent. In actual, economics is the study of how society uses its limited resources in a mannered way. Economics teaches us how we can carefully use the money, resources, and means of production. Economics focuses heavily on the four factors of production, which are land, labour, capital, and enterprise. These are the major four factors that make up economic activity in our world. The study of economics can describe all facets of a country's economic system such as how a nation practices its resources, how much time labourers dedicate to leisure time and work, and the outcome of investing in products of financial or industries or the effect of taxes and why businesses fail or succeed. The economics includes the study of land, investment of money, labour, production and income and of government expenditures and taxes.
Types of Economics
Generally, economics is divided into the following two categories of study:
- Macroeconomics: Macroeconomics is the study of a nation’s economy as a whole. It focuses on facts that affect the economy of a nation. Some of the major concerns of macroeconomics include unemployment rates, the gross domestic product of an economy, and the effects of exports and imports. In macroeconomics, a common issue is the effects of certain policies on the national or regional economy. For instance, a common focus of macroeconomics is the way taxes affect the economics of a nation.
- Microeconomics: Microeconomics is the study of economics at an individual, group or company level. It focuses on facts that affect individuals and organizations. It helps in studying the supply and demand for a specific product, the production that an individual or business is capable of, or the effects of regulations on a business. Microeconomics capable of solving problems on a small level. For example, wages are increased within a business, and then microeconomics aims to solve the effects of raising wages.
Importance of Economics in Different Sectors
Economics plays an important role in the economic growth of the nation as well as an individual. Also, help us in our daily life. There are various roles of economics in every person’s life. Some of the main important features of economics are discussed below.
Importance of Economics for Government
Economics is very helpful for the government. Below are some of the reasons for the importance of the economics in government sector:
- Help to Manage Shortage of Raw Materials: Economics provides a structured system for looking at possible consequences as we run short of raw materials such as gas and oil. For example, if we talk about the raw material like oil. The reserves of oil are limited. A rise in the usage of oil reserves, the supply of oil will start to fall and this causes the price to rise. In a free market, this rising price acts as a signal and therefore demand for the good falls. Also, the higher price of the oil provides benefits for firms to look for alternative sources of the good e.g. new supplies of oil from the Antarctic or look for other alternatives e.g. solar panel cars. If we were unable to find alternatives to oil, then we would have to respond by using less transport. This is how economics works.
- Distribution of Resources: Economics teaches us how to distribute resources in society. Generally, allocations of resources are done in two ways; Free-Market Economies and Command Economies. In free-market economies, resources are allocated through the interaction of free and self-directed market forces. This means that what to produce are determined by consumers, how to produce is determined by producers, and who gets the products depends upon the purchasing power of consumers. On the flip side, the allocation of limited resources by government, or by the agencies appointed by the government. This method is known as central planning, and economies that use this central planning are called command economies.
- Social Efficiency: The free market has countless examples of market failure. The best use of economics is to provide solutions for overcoming market failure. For example, driving into the centre of town has negative effects such as pollution and congestion. There is overconsumption. An economist can suggest a tax on driving into towns to avoid these problems. Of course, new taxes are not popular, but, it would provide a better solution for society. You may not want to pay for a drive into a city centre. But, if it saved your 2 hours of sitting in a jam, then maybe you would be quite happy to pay it.
- Poverty and Development: It helps in diminishing the poverty of the nation. As many developed countries are facing numerous problems like unemployment, overpopulation, low per capita income and low production. Economics is capable of solving these problems and in providing a better way out for these social problems.
- Distribution of National Income: From the study of economics one can easily judge that how the income should be distributed among the four factors of production. For this purpose, the Marginal productivity theory is suggested according to economic studies.
- Knowledge and Understanding: One of the main jobs for an economist is to analyze what is happening in the economy and find out the reasons for poverty, unemployment and low economic growth. This will help in the growth of the nation’s economy and will provide equality in terms of the economy throughout the nation.
- Forecasts: Economic forecasting is the process of making predictions about the economy. Economic forecasts are more difficult than understanding the current situation. However, although forecasts are not always reliable, they can help give decision-makers an idea of possible outcomes. So that they can be prepared for upcoming situations.
- Evaluation: Economics is not a definitive science like Mathematics because of many unknown variables, it is impossible to be definitive about outcomes, but a good economist will be aware of the results depend on different variables, and there are different potential outcomes. This should help avoid an overly ideological approach.
Importance of Economics for Individuals
The study of the economics plays an important role in the life of every individual related to the different field.
- Useful for Producer: Economics is very resourceful for the producers. It guides producers about how they should combine the four factors of production and minimize the cost of production.
- Useful for Consumer: The consumers can adjust their expenditure on various goods in a better way if they know the principles of economics. They will spend their income according to the law of Equi-Marginal utility in order to get maximum satisfaction and also manage their living expenses in a proper way.
- Useful for Politicians: Its study is helpful for the leaders to understand the economic problems if they have a knowledge of Economics. So that they can help in the betterment of the nation.
- Useful for Finance Minister: As we know that the Finance minister of the nation or province prepares the yearly budget of the country or state. In these terms, economics guides him/her that how he should frame the tax policy and monetary policy.
- Useful for Labor: It guides the labourers or workers that how they can get maximum wages from the employer. It enables them to get the right of a trade union, collective bargaining and fixation of working hours. So that they can get their basic rights.
- Useful for Individual: The study of economics is very helpful for every citizen. It enables him to understand and criticize the economic policies of the government. He can also guide the government and able to give his/her feedback on economic activities of govt.
Other Importance of Economics in our Life
There are various other important features of economics as listed below:
- Economic Strategies: At present, the importance of economic planning or strategies cannot be ignored. With the help of these planning, we can utilize our natural resources in a better way and can improve our economic condition.
- Cultural Values: One’s education cannot be considered complete unless he has some knowledge of economics. The things which happen on the daily basis around us have an important economic bearing. So there is also the cultural value of the study of economics. Economical skills help us a lot in our daily life like we can manage our expenses etc.
- Solution to Economic Crisis: It teaches the countries about how they can protect themselves from the economic crises. The developed countries always wish that there should be economic stability and full employment without inflation, to achieve these objectives economical studies play a crucial role.
- Inspiration: The detailed study of developed country’s economy inspires the developing countries that they can also improve their economic conditions by learning from their economic patterns.
- Intellectual Values: Economics has great intellectual values because it broadens our outlook, sharpens our intellect and teaches us how to maintain balanced thinking.
- International Trade: Economics knowledge is very useful for international trade also. It enhances the profit of the importers and exporters to a maximum. A businessman can easily understand the trade policies of various countries if he/she has economic skills.
Today all over the world, people have become highly economic minded. They have realized the importance of economics in their life; they know that the study of economics can provide them with the best possible solution to their economic and social problems. At present, economics is more useful than any other branches of knowledge just because of its primary concern i.e. human welfare.
