Economics - Meaning | Definition | Social Science

Economics - wordcloud

What is economics ?

Meaning of Economics

The word economics comes from the Greek words oikou (a house) and nomos (to manage). It means home management with limited funds available in the most economical manner possible. 

Adam Smith is known as the father of Economics. Initially, the name of economics was 'Political Economy.'

Economics is the study of scarcity. It is the study of those activities of human beings that are related to the satisfaction of unlimited wants by utilizing limited resources. 

"Scarcity is when the availability of resources is insufficient to satisfy the wants and needs of individuals and society."
Because of scarcity, to choose one course of action, we need to forgo some other course of action. Thus, any action requires a sacrifice. 

Economics studies how individuals and societies make choices; because resources are scarce and have alternative uses. In the context of society as a whole, scarce resources refer to the limited/insufficient factors of production. From the perspective of an individual, it refers to income and wealth.

Economics is a social science. Its primary function is to study how people - individuals, households, firms, and nations - maximize the gains from their limited resources and opportunities. This behavior of maximizing is called optimizing behavior - selecting the best among available options to maximize gains from the given resources. Hence, economics is the study of the choice-making behavior of the people. However, choice-making is not as simple as it looks. The economic world is very complex, and most economics decisions have to be taken under the condition of risk and uncertainty. Therefore making an appropriate decision or making a suitable choice is a complicated affair. Economists have developed analytical tools and techniques in order with the help of mathematics and statistics to tackle this complicated situation. The analytical tools and techniques, economic laws, theories, and elements constitute the body of economics.

In addition to the above questions, economics also encompasses subjects like economic development and growth, business cycles, public finance, unemployment, poverty, inflation, money and banking, international trade and investment, and so on.

Economic models assume people are rational (with well-ordered preferences), want to maximize something (such as profits or satisfaction), and then do the best they can given their scarce resources. An economic model is a simplified representation of an economic environment, with all but the essential features of the environment eliminated

Economics can be good and bad also. The bad economist considers only the current situation, the direct consequences of a course of action, and the effect of a given policy on some people. In contrast, the good economist focuses on 'the bigger picture,' consider the long term impact inquires about the effect of the policy on all people.

Economics has both positive and normative elements.  Positive economics sets a relationship between cause and effect;  normative economics is concerned with questions involving value judgments.

Economics- Meaning | Definition | Economic Activity

Definition of Economics

 "Economics is the study of how men and society choose, with or without the use of money, to employ scarce resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in future among various people and groups of society" - Paul A. Samuelson

Branches of Economics

Before 1930, there was only one 'Economics.' In 1933, Ragnar Frisch classified economics into two broad categories: 
  1. Microeconomics 
  2. Macroeconomics

Economic Activity

Economics studies the economic activities of a man.
Economic activities are those activities concerned with the efficient use of such scarce means to satisfy human wants.

Different economic activities-
1. Production means the conversion of input into the output.
2. Consumption means using of good and services for the satisfaction of our wants
3. Investment means using up goods (like tools and machinery) for further production.
4. Exchange refers to the sale and purchase of goods and services.

Why/ how economics is social science?

According to Alfred Marshal, economics is the study of wealth as well as man. Economics is a social science as it studies the behavior of humans in the ordinary business of life.  It is social because it concerns human behavior, and a science because when studying behavior, economists follow the scientific method. It deals with certain desires, aspirations, and motives, which can be estimated accurately. Here, it should be noted that only those motives/actions are considered whose incentives can be measured and estimated by the sum of money in a scientific way (tools and techniques), that is, with accuracy. Not all need's and want's incentives are measured by the sum of money and accurately, hence are outside the scope of economics.

Principles of Economics

The study of economics is based on certain principlesA principle is a self-evident truth that is readily understood and accepted by most people, such as the principle of gravity. Different principles have been suggested by economists, but some principles are more or less generally accepted.

Central Problem of an Economy

Economics studies how society decides what to produce, how to produce it, for whom to produce. These are called the central problem of an economy.

The reason for the economic problem is that limited resources have to be utilized to satisfy the unlimited wants of human beings. This gives rise to the economic problem of scarcity. Therefore, given the limited resources, a choice has to be made at every stage. 

These three economic problems have to be tackled by every economist of an economy. The knowledge of economics is the crucial one in finding out a feasible solution to these problems.

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