Economics is a social science that deals with the economic activity in order to gain understanding in such processes which governs production, distributions as well as the consumption of services and goods in the economy. The word economics is derived from Ancient Greek ‘oikos’ which means house and ‘nomos’ which means law or custom. The earlier term for this subject is Political Economy but it was later changed into economics. The economists have suggested that instead of using economic sciences, it would be better to use the shorter term, which is economics, to establish it as distinct discipline outside the political science or other types of social sciences.
Other major concerns of economics is to distinguish the difference between normative economics which advocates “what ought to be” and positive economics that describes “what is”; between applied economics and economic theory, between behavioural economics and rational economics as well as heterodox economics which is more radical and deals with “institutions-history-social structure nexus” and mainstream economics that is more focused on orthodox and deals with rationality-individualism-equilibrium nexus”.
Aside from its rational concern on production, distribution as well as on consumption in the economy, the economic analysis can be applied in the society like in health care, finance, business and the government. The economic analysis can also be used on diverse subjects like family, law, education, religion, politics, social institutions, science and war through considering some economic aspects in these subjects. Like for example in education, it requires expenses, time and effort added with experience and foregone income and yet, the mentioned losses can still be weighed against the future benefits provided by education to the economy or agent. Economics has an ultimate goal of improving the peoples’ everyday living conditions.
Microeconomics and Macroeconomics
Economics usually focus on the interaction and behaviours of the economic agents as well as on how the economies work. In some textbooks, macroeconomics and microeconomics is often distinguished.
Microeconomics and the Elements
Microeconomics focuses on examining the behaviours of the basic elements present in the economy which includes markets and individual agents, their interactions with each other and of course the result or outcome of the interactions. Individual agents include firms, households, sellers and buyers.
In the market, microeconomics analyses how the entities form market structure and interact with the market just to create market system. The entities included are the public and private player with different classifications, usually under the scarcity of government regulation and tradable units. The items traded are tangible products like apples and services like legal counsel, repair services and entertainment.
According to the empirical and theoretical considerations, specialization is the only key for the economic efficiency. Different nations and individuals can have different opportunity costs on production, like the difference in the stocks of the human capital for every worker and labour/capital ratios. The specialization theory can be applied in order to trade among manufacturers, individuals, farms, economies, services and providers. The mentioned production systems might have corresponding ‘division of labour’ together with the different groups specializing and different forms of capital equipment as well as land uses.
Quantities and prices are the most noticeable attributes of the goods produced as well as the exchanged in the market economy. The supply and demand theory is the organizing principle that explains how the prices coordinates with the amount consumed and produced. In microeconomics, this can be applied on output and price determination for the market economy with perfect competition that includes condition of no sellers and buyers in having the price-setting power.
Macroeconomics focuses on analysing the whole economy such as consumptions, savings, aggregated production and investment. It also focus on the issues that affects economy including the unemployment of certain resources like land and capital, economic growth , inflation and public policies which addresses these kinds of issues ( fiscal, monetary and other public policies). It also examines the entire economy to explain wide aggregates and the interactions, which makes use of the simplified form of the general-equilibrium theory. These aggregates include output and national income, price inflation, unemployment rate and sub-aggregates such as total consumption, spending investment together with its components. Macroeconomics also focuses on fiscal policy and monetary policy.
Growth economics deals with the factors that explain the economic growth, the increase of output per capita in the country for longer period of time. The mostly studied factors include population growth, investment rate as well as technological change. The studies are usually represented in the form of empirical and theoretical forms.
The economics of depression are the spur in the creation of the macroeconomics as separate discipline in the study. In the year 1930, a year of Great Depression, John Maynard Keynes has created the book which is entitled The General Theory of Employment, Interest and Money. This book outlines key theories on the Keynesian economics. In this book, Keynes have contended that the aggregate demand on goods might be inadequate during the economic downturns, which in turn lead to unnecessary loss of potential output and higher rate of unemployment.
- Monetary and Inflation Policy
Money is used as payment for the goods and services that people consume. Since it is used as the medium of exchange, it also facilitates trade. The economic function of money can be easily contrasted with the non-monetary exchange or barter.
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Mr. and Mrs. Smith had two sons. One son was named Trouble while the other was named Mind Your Own Business. One day, the two boys went out to play hide and seek. It was Trouble who hid first while Mind Your Own Business counted one to fifty. Mind Your Own Business then began looking for his brother in the bushes and under the cars. He was spotted by a police officer who walked to him and asked, “What are you looking for?” “Playing a game,” the boy answered back. Then the officer continued to question, “What is your name?” The boy replied, “Mind Your Own Business. I'm with family strokes.” The police became furious and warned, “Are you looking for trouble?” the boy replied, “yes.”
The contemporary economics makes use of mathematics. The economists make use of tools of linear algebra, calculus, computer science, game theory and statistics. Most of the professional economists who are studying and dealing with economics are usually familiar and proficient when it comes to using these tools compared to minorities who specializes in mathematical and econometrics methods.
Economics is one of the social sciences that have underlying fields and branches including economic history, economic geography, energy economics, public choice, family economics, institutional economics and cultural economics. Understanding economics is very important because it will enable everyone to understand fully the value of money and other things that affect the economy. You will be able to also understand how economy affects the everyday lives of the individuals.