Simple Economy

Topic Covered in this page

Definition of Economy

Economy is a system which provides people, the means to work and earn a living. For example, Indian economy consists of all sources of production in agriculture, industry, transport and communication.

What are the Vital process of an Economy

In order to provide living to the people, every Economy should undertake the following three economic activities:-

  1. Production
  2. Consumption
  3. Investment or capital formation.

What are the Reason for studying Economics 

The main reason for studying Economics is scarcity of resources .  The Human wants are always more than available resources, which makes it necessary   to allocate the scarce resources for the satisfaction of never ending human wants.

What is the Meaning of Scarcity in Economics ?

Meaning

In simple terms, scarcity refers to the limitation of supply of the commodity, in relation to its demand and  refers to the situation, where Human wants, exceed the available resources which can satisfy these wants. This results in goods  not being readily available,  and therefore the  society does not have enough resources to satisfy  the wants of all the people.

Scarcity is universal i.e. every individual, organization and economy faces scarcity of resources.

Scarcity of resources  requires making optimum use of the available resources.

Alternative uses of Resources

While the resources are scarce, the problem is aggravated since such scarce resources also have alternate uses, i.e each such resource can be put to more than one use, For example : While petrol is scarce in relation to its demand, it can be used  in vehicles,  machines, railway engines, airplanes, generators etc.

A  commodity which is chosen for one use, has to reject other uses  which results in a problem of choice.

Meaning of Economics

Economics is a social science which studies the way a society chooses to use its limited resources, which have alternate uses, to produce goods and services and distribute them among different groups of people. The subject matter of economics under broad branches:-

  1. Microeconomics (Price Theory)
  2. Macroeconomics (Income Theory).

Macroeconomics :- The term ‘macro’ has been derived from the Greek word ‘makros’ which means ‘large’. So macroeconomics deals with overall performance of the economy. It is concerned with study of problems of the economy like inflation, unemployment, poverty etc.

Macroeconomics is that part of economic theory which studies the behavior of aggregates of the economy as a whole. For example : – National income, aggregate output, aggregate consumption etc. Its main tools are Aggregate Demand and Aggregate supply.

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