Hello everyone, welcome to singhvi family. Hope you are in the best of health and spirit. In today’s blog we will understand what exactly is economics, what is economics study about and what is economic analysis?. Good news is you don’t need to study, it is a mere application of practical circumstances appearing in our day to day life. You would be surprised to know that economics is derived from the Greek word oikonomia which means household. What we do in our household is nothing but economics. We have our resources for eg. money and wants which we have to satisfy with these limited resources. For detailed understanding of economics let us consider this example: Your birthday is approaching and your mom gives you RS. 2,000. Now initially you are very excited but as you put your thinking cap on many questions come to your mind. I will buy a dress, but the dress itself will cost me RS. 1,500. I need to give a treat to my friend Ankita too which will cost RS.600. The most important thing is You have only RS. 2,000. Or shall I save this money or shall I buy a book? These are all questions which you need to answer and make a decision. Or you could go for a treat and save IE. Even multiple options are available. 

The major dilemma in the above situation is which option to choose? IE. Buy a dress or give a treat or treat and save. But why do you have this dilemma? Because you have only RS.2,000. Had you been given RS. 10,000. You could have done everything. So, what do we understand  from the above example?

Resources: scarce: money

Wants: Unlimited:  treat, dress, book, save.

Since we cannot have everything with the limited resources available, we are forced to make choices and leave some of our wants unsatisfied. This is what life is about.

Solution:

This helps us in understanding two important fundamental facts of economics:

TWO FUNDAMENTAL FACTS:

1.     ‘Human beings have unlimited wants’ and

2.     ‘The means to satisfy these unlimited wants are relatively scarce’ form the subject matter of economics.

Now that we know the meaning of economics. The question that comes to our mind is what does economics study about?

It is the study of processes by which the relatively scarce resources are allocated to satisfy the competing unlimited wants of a society.

Economics is the study of how we work together to transform scarce resources into goods and services to satisfy the most pressing of our infinite wants and how we distribute these goods and services among ourselves.

The definition of Economics, with the narrow focus on using relatively scarce resources, to satisfy human wants, is the domain of modern neo classical micro economic analysis.

Though this definition is correct, it is incomplete. Why?

Some of the important concerns of modern economies have not been covered by this concept.

·       Productive capacity of modern economies has grown tremendously not only in terms of quantity but in terms of quality as well.

Let us understand how productive capacity of modern economies has grown in terms of quality:

Now let us understand how quality has improved substantially.

On the other hand, we know that resulting growth in production and income has not been smooth. There have been periods in which output not only failed to grow, but also declined sharply.

Now  having understood the meaning of economics, we come across an important aspect of economics. Let us understand what economic analysis is all about. Before that first let us understand why the need for economic analysis? 

In day-to-day events we come across several economic issues such as:

·       Changes in price of individual commodities,

·       Changes in general price level

·       Economic prosperity

·       Higher standards of living of some countries despite

·       General poverty and poor standard of living in others

·       Some firms making extraordinary profits while

·       Others close down, etc.

All these are matters fundamentally connected with economic analysis.

The study of economics helps us to develop an analytical approach that helps in:

·       understanding and analyzing a wide range of economic issues.

·       It also provides us with a number of models and frameworks that can be applied in different situations.

·       Tools of economics assist in choosing the best course of action from among different courses of action available to the decision maker.

However, most economic problems are of complex nature and are affected by several forces, some of which are rooted in economics and others in social norms, political setup, etc.

Conclusion: Study of economics cannot ensure that all problems are appropriately tackled but it would definitely help us to examine a problem in its right perspective and discover suitable measures to deal with the same.

Take Test and check your understanding:

Note: Please take test as per your specific topic and don’t consider others.

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