AN  INTRODUCTION  TO  ECONOMICS

Economics is a social science that seeks to analyze and describe the production, distribution, and consumption of goods and services. Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources. As a social science economics studies the social relationship of individuals. But unlike other social sciences, economics concentrates its study on the economy.

The word "economics" is from the Greek words οἶκος [oikos], meaning "family, household, estate," and νόμος [nomos], or "custom, law," and hence literally means "household management" or "management of the state." The management of society's resources is important because resources are scarce. Scarcity means that society has less to offer than people wish to have. Just as a household cannot give every member everything he or she wants, a society cannot give every individual the highest standard of living to which he or she might aspire.

Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms.

The major divisions of economics include microeconomics, which deals with the behaviour of individual consumers, companies, traders, and farmers; and macroeconomics, which focuses on aggregates such as the level of income in an economy, the volume of total employment, and the flow of investment.

Macroeconomics is the study of entire economy. The word macroeconomics means economics in the large. Macroeconomists measure overall economic activity, analyse the determinants of such activity by the use of macroeconomic theory: forecast future economic activity and attempt to formulate policy responses designed to reconcile forecasts with target values of production, employment and prices. An important task of macroeconomics is to develop ways of aggregating the values of the economic activities of individuals and firms into meaningful totals. To this end such concepts as gross domestic product (GDP), national income, personal income, and personal disposable income have been developed. Macroeconomics is concerned with such major policy issues as the attainment and maintenance of full employment and price stability.

 Microeconomics is the study of parts of the economy. The word”micro” means small and microeconomics means economics in the small. The optimising behavior of individual units such as households and the firms provides the foundation for microeconomics.

Microeconomists may investigate individual markets or even the economy as a whole, but their analyses are derived from the aggregation of the behavior of individual units. Microeconomic theory is used extensively in many areas of applied economics. It is used, for example, in industrial organisation, labor economics, international trade, cost-benefit analysis and many other economic subfields.

 While microeconomics and macroeconomics view the economy from different perspectives, both are important. Scientific theories are used to explain economic activity in the world. The theories consist of sets of economic principles that abstract from the real world, similar to the way a road map abstracts from the world. A principle is obtained by continuously testing a hypothesis to see if it corresponds to activity in the world. Positive economics describes the way the world actually operates, and normative economics suggests how the world should operate. Positive economics is based on testable hypothesis, which can be proved false. Normative economics is based on an individual’s values, which cannot be proved either right or wrong.

The areas of investigation in economics overlap with other social sciences, particularly political science, but economics is primarily concerned with relations between buyer and seller. The economist seeks to identify the benefits and costs of any activity. Since marginal changes in benefits and costs from an activity are the basis for most choices, such changes tend to attract the economist’s attention. Economists also use economic theories to recommend policies to the government.

 

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