Definition of Economics
What is Economics
Economics is not a natural science, i.e. it is not concerned with studying the physical world like chemistry, biology. Social sciences are connected with the study of people in society. It is not possible to conduct laboratory experiments, nor is it possible to fully unravel the process of human decision-making.
“Economics is the study of how we the people engage ourselves in production, distribution, and consumption of goods and services in a society.” The term economics came from the Greek for oikos (house) and nomos (custom or law), hence “rules of the household.
“The science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
Adam Smith’s Definition of Economics
An inquiry into the nature and causes of the wealth of nations.Adam Smith
Types of Economics:
There are two major types of Economics
2. Macro economics
The branch of economics that studies the parts of the economy, especially such topics as markets, prices, industries, demand, and supply. Microeconomics is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources typically in markets where goods or services are being bought and sold. It also examines how these decisions and behaviors affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the supply and demand of goods and services.
The branch of economics that studies the entire economy, especially such topics as GDP, unemployment, inflation, and business cycles. Macroeconomics involves the “sum total of economic activity, dealing with the issues of growth, inflation, and unemployment and with national economic policies relating to these issues” and the effects of government actions (e.g., changing taxation levels) on them.
BRANCHES OF ECONOMICS
Normative economics is the branch of economics that incorporates value judgments about what the
the economy should be like or what particular policy actions should be recommended to achieve a desirable
1-A normative economic theory not only describes how money-supply growth affects inflation but it
also provides instructions that what policy should be followed.
2- A normative economic theory not only describes how interest rate affects inflation but also
provides guidance that what policy should be followed.
Positive economics, by contrast, is the analysis of facts and behavior in an economy or “the way things
are.” Positive statements can be proved or disproved, and which concern how an economy works, i-e
unemployment is increasing in our economy. Positive economics is sometimes defined as the economics
of “what is”
1- A positive economic theory might describe how money-supply growth affects inflation, but it does
not provide any instruction on what policy should be followed.
2- A positive economic theory might describe how interest rate affects inflation but it does not provide
any guidance on whether what policy should be followed.
FACTORS OF PRODUCTION
Factors of production are inputs into the production process. They are the resources needed to produce goods and services. The factors of production are:
land used for agriculture or industrial purposes as well as natural resources taken from above or below the soil.
It consists of durable producer goods (machines, plants etc.) that are in turn used for production of other goods.
It consists of the manpower used in the process of production.
It includes the managerial abilities
What is Economic Growth?
Economic growth is an increase in the total output of a country over time. It is the long-run expansion of the economy’s ability to produce output. When GDP of a country is increasing it means that country is growing economically. Economic growth is made possible by increasing the quantity or quality of the economy’s resources s (labor, capital, land, and entrepreneurship).
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