What is economics?

What is economics?

Introduction

Humans have unlimited wants, but the resources present to us are limited. This is where economics comes into play. The subject has proved to be beneficial to many sectors, from production for making the maximum output at minimum cost to government bodies formulating policies to meet the needs of the society. Economics studies everything from an individual household to a whole nation. It is not just about money; it is about studying and analysing the choices and making the most efficient one out of all. 

Meaning of Economics:

Economics is the study of scarcity and needs. It studies the limited resources which have alternative uses and ways to use these limited resources to meet society’s unlimited wants. 

It is further divided into two, microeconomics and macroeconomics. Microeconomics studies the decisions of a single agent; it could be a household, a seller, a buyer. Macroeconomics, however, examines the economy as a whole. Both these divisions are essential to studying the other. 

Economies of scale:

An advantageous situation in which companies can lower their cost by increasing production is called Economies of scale. It happens when the business’s resources are used to the fullest, or simply put – efficiently. 

The cost per unit decreases by increasing the production because the price is spread over more units. For instance, if the rent of a factory is fixed no matter the number of goods produced, then the production of more goods would mean the cost of goods per unit will be less. 

Increasing production would even lead to specialisation of the workers that again would help in optimum usage of the time and effort of the staff.

The scale of the business does play an essential role in how much of this efficiency can be achieved. Large scale companies would have more efficiency in comparison to smaller-scale ones. This explains why small businesses sell the same goods as larger companies at a higher price.

What is a mixed economy?

A mixed economy is the blend of two different economic systems. One is a capitalist or market based economic system; the public has the reins on how the market will function. There is privatisation, with no government intervention. The other is a socialist or regulated economic system where the government does most economic activities.

Not every country has the same economic system, even when categorised as a mixed economy. Like the US has a more capitalist system while China has a more socialist system. In a capitalist system, private sectors flourish but not with equality; the rich get richer, and the poor get poorer. In a socialist system, since the government takes part in most economic activity, it leaves no chance for the private sector to reap those benefits. When there are no benefits, people don’t take the initiative, leading to no progress. 

This is where the Mixed Economy is at an advantage. It gives a chance to the private sector to flourish while still shielding the underprivileged and aiming for income equality. To understand more how advantageous it is, the following shows the advantages and disadvantages of a Mixed economy:

• Advantages of a Mixed Economy:

  • Encouragement to the Private Sector: Mixed Economy gives enough liberty to the private sector to take the initiative and make the most out of the given opportunities and make a profit out of them. 
  • Government Intervention: As stated earlier, government intervention is necessary for the optimum utilisation of resources. It makes sure that the buyers and sellers are at the same level and that neither gets exploited. 
  • Aid to marginalised groups: While letting the market function with minimal intervention, helping parts of society like the disabled or retired is of no benefit to the general public. Therefore, such initiatives are taken by the public sector. 

• Disadvantages of a Mixed Economy:

  • Reliance on taxes: Since the government has many places to spend, most of the economic activities are undertaken by the private sector, leaving the government with the resort of increasing taxes to spend on public welfare. 
  • Inefficiency in the public sector: In many parts of the economy, only the public sector has permission to take action. In such sectors, the employees become negligent due to a lack of competition. It leads to the wastage of resources.
  • Bad Policies: One thing that could go wrong is bad policy decisions by the government. There could be instances where the government favours one group of society more than the other and makes decisions that are not advantageous to all—leading to inefficiency in the market and distrust in the government. 

What is inflation?

No matter the type of economic system, a phenomenon that every nation faces is Inflation. Inflation is the decline in the purchasing power of a given currency over time. It can be estimated by comparing the amount of money needed to buy the same basket of goods and services over time. It is a phenomenon everyone has heard of, for instance, by our grandparents recalling when they bought groceries at the price we buy our snacks now. Simply put, it’s an increase in the price level of goods and services. 

While keeping track of the change in price for a good or two is easy for a household, it will be costly and time-consuming to track the price changes for each good or service. Therefore, finding a rate that could denote all the price level changes as a whole is easier. This inflation rate is then used to understand the phenomenon and find ways to work around it. 

Inflation occurs when the money supply is more than the economic growth. The increase in money supply could be due to increased printing and distribution of currency or cashing of public securities by the government. The government can manipulate the rate of inflation to some extent.

Conclusion

From economies of scale to the mixed economy to inflation, each study is distinct yet comes under the umbrella of economics. This just goes to show how broad the scope of the subject is. From an individual’s decision to buy a product to a country’s decision as to how much money should be printed, each of these decisions is made after understanding the laws of economics. This shows how deep-rooted the subject is and its importance in the modern world, where resources are depleting and wants are increasing.