THE MEANING OF ECONOMICS

The word “economics” derives from the Greek word “oikonomika” that means household man­agement. Economics came of age as a separate area of study with the publication of Adam Smith’s “The Wealth of Nations” (1776). Adam Smith is often considered to be the founder of modern day economics because he was the first writer to outline and appraise the workings of a free market economy.

Most economists define economics as a social science concerned with the production, distribution, exchange, and consumption of goods and services. Economics is the study of how goods and services get produced and how they are distributed.

By goods and services, economists mean everything that can be bought and sold. The two kinds of goods are economic goods and free goods. Economic goods are those things people will pay to receive. Bicycles, bread, radios, and jeans are examples of economic goods. Free goods are things that can usually be had without cost. Air, sunshine, and in some cases water are examples of free goods. An item can be both a free good and an economic good. The water people drink from a clean stream or brook is a free good. The water that many people drink from the tap in their homes has to be paid for and is an economic good. Air might be thought of as free. Yet in some areas it costs millions of dollars to keep the air clean.

Services play an important part in everyone's daily lives. Today more people work in service industries than in the production of actual goods. Sales policies and training of workers are directly related to the production of goods. Sales of many goods are, in turn, often linked to a warranty and repair service. Who would buy a TV set if there were no warranties or repair services? How many cars would be on the road if there were no mechanics to keep cars in repair?

By produced, economists mean the processing and making of goods and services. By distributed they mean the way goods and services are divided among people. Economists focus on the way in which individuals, groups, business enterprises, and governments seek to achieve efficiently any economic objective they select.

Economists notice that there is no restriction to the amount or kinds of things people wish to purchase. But still there is a limit to the resources used to produce goods and services available to satisfy people’s wishes and needs. In other words, economics always deals with the problem of scarcity (scarcity is the condition that exists if more of a good or service is demanded than can be produced). Given that most resources, goods, and services are scarce, every society has a lot of choices to be made. What goods will be produced? Which limited resources will be used to produce them? To whom will these goods and services be distributed? Since people do not have limitless supplies of wealth, they must make decisions about what goods and services to obtain and consume and whether they should save or spend.

In the process of making choices people and governments will try to economize, to get the most from what they have. Taking this fact into account we can define economics as the study of how, in a given society, choices are made in the allocation of resources to produce goods and services for consumption, and the mechanisms and principles that govern this process. In a word, economics is the science that deals with production, distribution and consumption of commodities, while economy is a careful or thrifty use or management of resources, such as income, materials or labour.

The production, distribution, and consumption of goods and services can be strongly influenced by government actions. A government can act to limit production of certain goods. At other times a government can encourage greater production of certain goods. Government taxes on goods entering a country can help to protect a nation's industries. Government tax policies can also affect profits made by business people. This, in turn, can affect many production decisions. In some parts of the world, governments make the major decisions on how goods and services are distributed.

Economics is concerned with anything that influences production, distribution, and consumption. Floods, the weather, politics, and wars can have important economic effects. For example, a cold weather in parts of South America may reduce the coffee crop. The result can be a sharp rise in coffee prices in the United States. In the 1970s, events in the Middle East led to a cut-off of Iranian oil to the United States. This had serious economic effects for the country.

The major divisions of economics include microeconomics, which deal 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. Both fields place a heavy emphasis on the individual or household as the basic unit of analysis, rather than the classes.

Why should we study economics? There are several very good reasons, all of which involve us. Some of them have to do with us as individuals, some with us as earners or as spenders, some with us as citizens and finally as future economists. As members of the society we live in, there is no escaping economics. The food we eat, the dwelling we live in, the clothes we wear and the way we spend our leisure time are all affected by economic forces. Economic forces also influence decisions in the world of business. In fact one common definition of economics is “the study of how people make living”. The more you get informed of the subject, the better career decisions you'll be able to make.

Economics will also be helpful in performing your responsibilities as a citizen in a democracy. As a voter you'll be asked to express your opinion on many subjects involving economic issues. The study of economics will help us to deal with such subjects intelligently.

We have seen that economics deals with the problems of scarcity and choice faced by societies and nations throughout history, but the development of modern economics began in the 17th century. Since that time economists have developed methods for studying and explaining how individuals, businesses and nations use their available economic resources. Large corporations use economists to study the ways they manage businesses and to suggest methods for making more efficient use of their employees, equipment, factories and other resources. Governments also employ economists to study economic problems as well as ways to solve them.

Date: 2015-04-20; view: 2012