Top 4 Definitions of Economics

The field of economics is very practical and realistic. It attaches to the survival and financial aspects of our lives. Economics is a determinant of sustenance for both the country and its individuals.

The continuous change in the economy, prices and demands affect the consumption and production levels. Through economics, it becomes easier to understand the variables that can possibly affect the economy and the country’s total income. The supply and demand are also explained as closely related under economics.

Economics can be broadly classified into two parts – macroeconomics and microeconomics. Macroeconomics investigates the entire economy generally. Whereas, microeconomics deals with the individual factors and variables that affect a particular household economy. Both macroeconomics and microeconomics are different yet interrelated to each other. This will be elucidated in the sections below.

In the sections below, there will be an elaboration on the concepts of economics. It will further be understood through a prominent definition of economics. There will be an elaboration on the concept of microeconomics and its relation to variables such as supply and demand.

Economics – An Explanation of the Concept

Economics is considered as a branch of social sciences that deals in understanding the market and economy of a country, area or region. It investigates three main activities that surround the goods and services. These are – production, consumption, and distribution. Production is the amount of goods and services manufactured and produced per year.  Consumption is the amount of goods and services that are used by the population per year. Distribution is the availability of goods and services to the various sections of a country.

Economics explores the behaviour of the consumers in relation to the shift in prices of the goods and services. It pre-determines that consumers are rational beings and focus on deriving optimum utility or satisfaction from each consumption. It further divides the entire market space between two entities – consumers and producers. Consumers, as understood, are the section of the population that consumes the goods and services. The providers for these goods and services are called the producers. There is a seamless communication between these two factors, and thus, the market is said to exist.

Economics also studies the allocation of resources. The resources in a country can be scarce or abundant. The economic policies of a government must be planned in appropriate allocation of resources. The allocation of scarce resources stands as a challenge, as they are limited and must be used strategically.

Economics explores the relation between supply and demand. Supply refers to the availability of the goods and services. Demand refers to the desire or willingness to purchase particular goods and services. It also studies factors that affect the supply and demand, such as population, disposable income, production, and more.

Top 4 Definitions of Economics

Economics can be understood with the four definitions given by prominent economists. The definition of economics explains diverse perspectives of how the economy is viewed in relation to society and individuals. These four definitions of economics are:

Wealth Definition – Adam Smith

The wealth definition was given by Adam Smith. According to this definition, economics is termed as the “science of wealth”, that is, the economy of a nation depends on the wealth generated through the goods and services. This includes the exports and imports of the goods and services, which is indicated by consumption and production.

Definition of Economics – Alfred Marshall

According to Alfred Marshall, economics is defined as the “means to ends”. Here, the means are the goods and services that are available. The ends refer to the needs and requirements by people that are satisfied through the means. This definition considered economics as a study of societal needs and means.

Scarcity Definition – Lionel Robbins

According to this definition of economics, the appropriate allocation of scarce resources is the main objective of economics. This definition studies the relation between human behaviour and use of resources that are scarce to meet the requirements.

Final and Compromise Definition – Paul Samuelson

This definition of economics is considered to be a complete amalgamation of the previous definitions. It states that wealth is used for employing scarce resources that can have substitute uses. The goods and services made out of the scarce resources are distributed to the society for usage.

Economics can be broadly understood with its two classifications – macroeconomics and microeconomics. Macroeconomics treats the entire economy as generalised. It studies the economic factors that influence the economy of a country. Microeconomics enquiries into the small and fractional aspects that can affect individual economies. This is further elaborated in the following section.

Microeconomics – A Complete Understanding

Microeconomics is the branch of economics that studies the individual behaviour in allocation of resources, production of goods and services, and distribution. It studies the individual sectors, markets, enterprises, and other income sources of the individual population. The focus of microeconomics studies how the supply and demand is affected across the individual types of markets. Microeconomics classifies markets as – perfect market, monopolistic market, oligopoly, and imperfect market.

Microeconomics understands the opportunity costs and the maximisation of utility. It studies how the decision for opportunity costs are made, that is the loss of alternative values to select the best value. The utility maximisation is understood through the concept of total and marginal utility. Total utility is the aggregated satisfaction that the consumer receives after the optimum consumption. Marginal utility is the additional satisfaction that the consumer receives on consuming an extra unit.

The main aim of microeconomics is to enquire how the individual economy is affected through changes in price, change in supply, demand, utility and costs. These small factors then determine the overall effect on the economy, which can be classified as macroeconomics study.

Conclusion

The above sections take on a detailed understanding of what economics is. It investigates the goal, nature and relation to the economy of a country. Economics is further elaborated through the four definitions of economics. These definitions are given by Adam Smith, Alfred Marshall, Lionel Robbins, and Paul Samuelson. Economics can have two branches – macroeconomics and microeconomics. The above information discusses these two branches.