The meaning of economics

The word “economics” derives from the Greek word “oikonomika” that means household management. Economics came of age as a separate area of study with the publication of Adam Smith’s “The Wealth of Nations” (1776). Adam Smith is often considered to be the founder of modern day economics because he was the first writer to outline and appraise the working of a free market economy.

Although the content and character of economics can`t be described briefly, numerous writers have attempted that. An especially useless, though once popular, example is: “Economics is what economists do.”

Similarly, a notable economist of the last century Alfred Marshal called economics “a study of mankind in the ordinary business of life.” Lionel Robbins in the 1930s described economics as “the science of choice among scarce means to accomplish unlimited ends.”

During much of modern history, especially in the nineteenth century, economics was called simply “the science of wealth.” Less seriously, George Bernard Shaw was credited in the early 1900s with the witticism that “economics is the science whose practitioners, even all were laid end to end, would not reach agreement.”

Most economists define economics as a social science concerned with the production, distribution, exchange, and consumption of goods and services. Economics is the study of how goods and services get produced and how they are distributed.

By goods and services, economists mean everything that can be bought and sold. The two kinds of goods are economic goods and free goods. Economic goods are those things people will pay to receive. Bread, bicycles, jeans are examples of economic goods. Free goods are things that can usually be obtained without cost. Air, sunshine, and in some cases water are examples of free goods. An item can be both a free good and an economic good. The water people drink from a clean stream or brook is a free good. The water that people drink from the tap in their homes has to be paid for and is an economic good.

Services play an important part in everyone’s daily lives. Today more people work in service industries than in the production of actual goods. Sales policies and training of workers are directly related to the production of goods. Sales of many goods are, in turn, often linked to a warranty and repair service. Who would buy a TV set if there were no warranties or repair services?

By produced, economists mean the processing and making of goods and services. By distributed they mean the way goods and services are divided among people. Economists focus on the way which individuals, groups, business enterprises, and governments seek to achieve efficiently any economic objective they select.

Economists notice that there is no restriction to the amount or kinds of things people wish to purchase. But still there is a limit to the resources used to produce goods and services available to satisfy people’s wishes and needs. In other words, economics always deals with the problem of scarcity (scarcity is the condition that exists if more of a good or service is demanded than can be produced). For an individual, limited resources include time, money and skill. For a country, limited resources include natural resources, capital, labour force and technology. Given that most resources, goods, and services are scarce, every society has a lot of choices to be made. What goods will be produced? Which limited resources will be used to produce them? To whom will these goods and services be distributed? Since people do not have limitless supplies of wealth, they must make decisions about what goods and services to obtain and consume and whether they should save or spend.

The condition of scarcity is the main problem economics studies. Economics is a social science that studies how individuals, governments, firms and nations make choices on allocating resources to satisfy their unlimited wants.

In the process of making choices people and governments will try to economize, to get the most from what they have. Taking this fact into account we can define economics as the study of how, in a given society, choices are made in the allocation of resources to produce goods and services for consumption, and the mechanisms and principles that govern this process. In a word, economics is the science that deals with production, distribution and consumption of commodities.

The production, distribution and consumption of goods and services can be strongly influenced by government actions. The government can act to limit production of certain goods. At other times the government can encourage greater production of certain goods. Government taxes on goods entering a country can help to protect nation’s industries. Government tax policies can also affect profits made by businessmen. This, in turn, can affect many production decisions. In some parts of the world, governments make the major decisions on how goods and services are distributed.

Society makes two kinds of choices: economy-wide, or macro choices and individual, or micro choices. Reflecting the macro and micro perspectives, economics consists of two major branches: macroeconomics and microeconomics.

The old saying “Looking at the forest rather than the trees” fits macroeconomics. Macroeconomics is the branch of economics that studies decision making for the economy as a whole. Macroeconomics examines economy-wide variables, such as inflation, unemployment, growth of economy, money supply, and national incomes.

Examining individual trees, leaves, and pieces of bark, rather than surviving the forest, illustrates microeconomics. Microeconomics is the branch of economics that studies decision making by a single individual, household, firm, industry, or level of government. The focus is on small economic issues, such as economic decisions of particular groups of consumers and businesses.

Why should we study economics? There are several very good reasons, all of which involve us. Some of them have to deal with us as individuals - spenders, some - as citizens and finally as future economists. As members of the society we live in, there is no escaping economics. The food we eat, the dwelling we live in, the clothing we wear and the way we spend our leisure time are all affected by economic forces. Economic forces also influence decisions in the world of business. In fact, one common definition of economics is “the study of how people make living”.

We have seen that economics deals with the problems of scarcity and choice faced by societies and nations throughout history, but the development of modern economics began in the 17^th century. Since that time economists have developed methods of studying and explaining how individuals, businesses and nations use their available resources. Large corporations use economics to study the ways they manage business and to suggest methods for making more efficient use of their employees, equipment, factories and other resources. The government also employs economists to study economic problems as well as solve them.