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What is Economics?

Synopsis

Economics is a subject that deals with the human behaviour related to the allocation of scarce resources so that consumers can maximise their satisfaction, producers can maximise their profits, and the society can maximise its social welfare.

Introduction 

Economics is a subject that we come across daily while dealing with our society. It talks about all those activities which we as human beings carry on to satisfy our unlimited wants with limited or Scarce resources

Origination 

Economics is a word that is derived from 2 Greek words – “Oikos” means Household and “Nemein” means Management. It means economics deals with ‘management of household‘. This household can be any individual whether producer or consumer, or any country.

History 

As we all have parents, economics also has. Adam Smith, a Scottish economist, is known as ”The Father of Economics”. Till the late 19th century, the term “political economy” was used in place of the term “economics”.

Explanation

Let’s start with an example –

Today your 10th board result has been declared. You scored 93% marks. Congratulations. Your parents are too happy and they want to gift you something of your choice. Now you will find that you have so many wishes that you want to get fulfilled-

  • A Gear Cycle
  • iPhone
  • Piano

Can you have all of them? Can your parents afford all these at the same time?

The answer is NO. The basic reason behind this is very simple.

Your parents have limited income. They want you to give all these things but can’t because they have scarcity of money. It means they can fulfill some of your wants but not all as “Wants are never ending. The time one vanishes, other comes with its own excitement.” But no need to get disheartened. I am sure that you will choose the one that is making you crazy to get it fulfilled right now.

All this happens because of scarcity of resources and their alternative uses. Here, your parents can expend their money on any one of them. Means money too has alternative uses.

The economics also deals with this. It deals with the “problem of choice“.

Problem of choice arises because of these 3 reasons-

  1. Human beings have unlimited wants.
  2. Resources are limited or scarce in comparison to their demand.
  3. Resources have alternative uses.

And due to scarcity of resources, we come across this situation – 

Available Resources < Required Resources

This situation calls for making a better choice to get the maximum benefit with the resources we have at that particular moment of time. 

So, not only you and me but every individual and even every country of the world has to decide how to use these resources efficiently so that –

  1. As a consumer, we can maximise our satisfaction.
  2. As a producer, we can maximise our profits.
  3. As a society, we can ensure maximum social welfare.

Conclusion

Economics is just dealing with the “problem of choice” to get the maximum satisfaction with limited resources.

Positive Economics and Normative Economics

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