Before introducing economics, let’s break some myths. Let’s get to know that what the economics is not? So, economics is not the study of stock market, money and forecasting business charts.
Economics can be understood as social science that studies how people interact with production, consumption, distribution of goods and services. Due to unlimited wants of people and limitations of resources, we cannot produce each finished good, and here economics introduces its role. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources. The building blocks of economics are the studies of labour and trade.
Important Key-points
- Scarcity: Inability to satisfy all our wants is called Scarcity, or we can say that scarcity is the tension between infinite wants and finite resources.
- Incentives: Incentive is the set of external (rather than intrinsic) motivators that explain people’s choice. Simply putting, people are doing those work at which they are having more benefit with compare to other works.
Specialized Production and International Trade
Let’s look at the positions of Cuba, Venezuela, Zimbabwe and Iran, these countries are voluntarily or involuntarily cut-off from the world. They are less economically developed than they could be. If we look at developed countries, or the countries having higher valued currencies (United States, Russia, United Kingdom and Japan), we get that they are manufacturing those goods or providing those services which are the most demanded and at which they have enough resources to manufacture. And due to enough resources, their manufacturing costs are less with compare to other countries’ goods. And those things which they do not have or they cannot produce with benefits, they import from countries.
This concept is known as Specialization and trade system. According to the father of economics, Adam Smith, self-sufficiency is inefficiency and inefficiency can lead to poverty. This phenomenon describes that countries should be focused on those goods and services in which they are more specialized and have comparative advantage over other countries. Whenever we look at India and China, we get that they are doing more improvements by building international relations and they are focusing on their resources. For example, China has reached to a status within electrical vehicles, lithium-ion batteries, smartphones. Whatever people want to say, can say that China is a copycat in emerging technologies, or China does not follow intellectual property laws. But the truth is China has been improving itself for by far.
Economic Systems
There are mainly tree types of Economic Systems:
a) Planned Economy
Planned economy is the economy which is controlled by a central authority, in mostly cases that central authority is equivalent to government. The planned economy is commanded by the government, that’s why it is also known as Command Economy. In a planned economy, significant industries are acquired by the government, it is mostly followed by communist societies.
If a country or an entity has access to many resources then there are more chances that the economy will follow the command or planned economy. And most of the part of precious commodities such as gold, silver and petroleum would be acquired by the central authority. The people run other less profitable sectors such as agriculture, small businesses.
Whenever we look at theory of planned economy, we get that planned economy do things according to majority population’s interests. And that’s how planned economy becomes rigid and leads financial crisis because it cannot change its system rapidly like modern or mixed economies.
b) Free-Market Economy
Free-market economy leads private entities. Free-market economy or market economic system has very less interference by government. Market economies follow capitalism. The government holds less resources, it does not interfere with the important segments of the economy. Instead, regulation comes from the people and the relationship between demand and supply.
But the market economy is just a theoretical concept, because there is nothing, can be like free-market economy. Most of the countries are running by the rules, laws and regulations to have fair trades and monopolies. So, it is impossible to consider an economy without rules and regulations or a central authority.
Theoretically, free-market leads substantial growth to an economy. Within a market economy, there is a higher growth rate with compare to economic system.
c) Mixed Economy
Mixed economy can be described as the hybrid economy of market and planned(command) economic system. And this kind of economy is really existing within most of the leading economies. It can also be understood as the market economy under strict restrictions by the central authority.
Mixed system is adopted globally, within a mixed economy, most industries are owned by private entities, rest of the entities are treated as public services owned by government entities. Mixed-economic system, extracts good features of both of the economic systems.
Types of economics
1. Macro-economics
Macroeconomics is the study of the performance, structure, behaviour and decision-making of an economy as a whole. Macroeconomists focus on the national, regional, and global scales. For most macroeconomists, the purpose of this discipline is to maximize national income and provide national economic growth. It involves all those concepts which use to solve economic troubles’ reasons and its consequences. The main concepts are inflation, international trade relations, unemployment, national income or GDP, economic systems, and Fiscal & Monetary policies.
2. Micro-economics
Micro-economics is the study of the choices that individuals and businesses make to buy or sell goods within the market. Micro-economics focus on a specific person, entity or a company.
Macro-economic Vs Micro-economics
Conclusion:
In this article, we discuss some introductory concepts of Economics. We got that economics is the study of how people interact with production, consumption, distribution of goods and services. We got two basic principles, scarcity and incentives. We study economic systems and its types, importance of specialization and international trade. Then we classified types of economics, that is micro and macroeconomics, and we read differences between them.
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