4 Concepts of Economics that Consumers Should Know

Economics is a branch of social science that deals with the production, consumption, and distribution of goods and services. It also studies human behaviours in terms of economic activities. The basic aim of Economics as a field of study is to observe how human beings behave, assess it, and then use it to chalk out an ideal plan that will lead to less wastage, proper allocation of raw products, increase of profitability and ultimately lead to economic growth. 

Economics has been a part of the human lifestyle for eternity. Trade and exchanges have always been a part of human civilization. Even before the term Economics was formally coined, trade and exchanges between people existed. 

Today, almost all production, exchange, and trade activities are undertaken in exchange for money. But that does not mean that before money came, trade or exchanges didn’t happen. Demands for products and services have always existed, and since no single person can have all the goods he/she needs. Naturally, exchange and trade occurred. 

Before money became an important part of exchanges, a barter system existed. It exists even now. For example, if your friend has something you need but he doesn’t, and you have something that he needs, but you don’t. In such a case, you might just exchange the goods you both have. This is what the barter system is. But back then, barter was more prevalent. In fact, at one time, that was most probably the only kind of change that existed.

However, gradually, as currencies appeared, the use of money became more prevalent, and the barter system disappeared.

What is the Economy meaning, and what is the aim of Economics?

Economics tries to solve the problems of inequalities in the distribution of wealth, figure out theories that would help alleviate poverty, and assist in uplifting the marginalised classes. 

Economics is important in everyday life. Unlike trigonometry, it is used in our day to day life every single day. We engage in some sort of exchange, trade or consumption. With the growing competition, a person who understands how the market works, how money can be put to good use, how profits can be maximised, how raw materials and funds can be properly allocated, is likely to be more successful than his counterpart who doesn’t try to understand these.

A lot of people find it difficult to understand economics. However, it’s really not that difficult. Before you try to grasp the bigger questions, ask yourself some simple questions. The first question should be, what is economics about? Once you know what economics is about, the rest of it automatically becomes easy. 

Economy, meaning in simple terms, is a set of interrelated production and consumption activities that help in determining how the scarcely available resources are allocated.

What are the concepts that you should know about as a consumer?

Well, for starters, there are four very basic concepts of economics that one should know as a consumer. Most of the activities in economics revolve around these four concepts.

• Scarcity 

Scarce means insufficient. This is the problem around which most economic activities revolve. It is common knowledge that there are more consumers than there are resources, be it food items, raw materials for other products or absolutely anything else. Through economics, we try to solve this problem. Economics seeks to study how these scarce resources can be properly allocated so they can be used for the betterment of as many people as possible.

• Supply and Demand

You must have heard at some point in your life that “this product is in huge demand”, or “this product isn’t in demand anymore”. Well, this is another key concept of economics. The demand essentially refers to how many people want that product. Supply, on the other hand, refers to the quantity of that product actually available for sale, purchase or consumption.

• Cost and Benefits

Human beings undertake most activities in life after contemplating if they benefit them in some way or the other or not. So naturally, when dealing with economic activities, they think of benefits or profits as well. Theorists consider the concept of Cost and Benefits to be based on rational thoughts. When we say people are behaving rationally or logically, we mean that people are trying to earn as many benefits as they can in comparison to the cost incurred to them. Cost and Benefits are not limited to financial transactions alone. It can, like most other concepts can, be applied in our day to day life too. Many times we find ourselves wondering if something is worth it. It can be about relationships with other people, the workload of a job, the efforts we are putting into something. In such a case, we usually have two factors, one is the input, which could be efforts, monetary, or our sense of mental peace, and the other is the output or the result. In the end, we compare if the input we are applying is worth the output. This is rational behaviour, and this is what we understand when talking about cost and benefits- maximisation of profits.

• Incentives 

We are sure you have heard this term before. An incentive is anything that motivates or encourages a person to do something. Brokers get incentives for breaking a deal. The monetary benefit they earn from the aforementioned deal is their incentive. This incentive is a driving force for them taking efforts for a deal to happen. You might have seen parents trying to lure their kids with gift ideas to encourage their children to study better. For example, if you score well, we will get you a bike. Likewise, in economics, incentive can be simply said to be assistance either in cash or kind to lure people into participating in a particular business operation.

Conclusion

These are the four main concepts of economics that you must be aware of. Most economic transactions revolve around these concepts. Once you have a thorough understanding of these and you learn how to use them in your transactions or day to day life in general, you will realise that they are really easy. In fact, you might notice that you had been doing these or seeing these in several aspects of life anyway.