7. Economics as a Science.

7.1 The subject of economics.

Economics came of age as a separate area of study with the publication of Adam Smith’s ‘’The Wealth of Nations’’. 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.

By production, they mean the processing and making of goods and services.

By distributed they mean the way goods and services are divided among people. The central problem of economics is to determine the most efficient ways to allocate the factors of production and to solve the problem of scarcity created by society’s unlimited needs and limited resources.

7.2 Microeconomics and macroeconomics.

The major divisions of economics include microeconomics, which deals with the behavior of individual consumer, company, trader and farmer; and macroeconomics, which focuses on the level of income in an economy, the volume of total employment, and the flow of investment.

7.3 Three economics issues.

Every economic society has to answer three funda­mental questions, What, How and For whom.

What? Which goods shall be produced and in what quantities?

How? Most goods can be produced by a variety of methods. The total output of the community depends not only on the total supply of resources available but on the ways in which the resources are combined together.

For whom? Once we have produced goods and services we then have to decide how to distribute them among the people in the economy.

7.4 Economic system: market economy, command economy, mixed economy.

There are 4 types of economic systems:

The first type is the traditional economy. Traditional economic systems are usually found in the more remote areas and engage in agriculture or other basic activities, such as fishing or hunting.

The second type is the command economy. The planners decide which products will be made, who will receive the goods and service. Such countries as Cuba, North Korea, and China are examples of command economies.

The third type is market economy. The main essential element of market economy is private property. By ‘’private property’’ we mean the right of individuals and films to own the means of production. This gives freedom to a person.

The forth type is mixed economy. This type is marked out because there is no pure economic system in the world today.

7.5 The role of money in economy: a brief history and functions of money.

In the past most societies used objects as money for example: animal’s skins, sold, shells, but these early form of money have some disadvantages. It was difficult to measure accurately, divide some of them into a white range of amounts, and keep some of them for a long time. The first coins appeared in the Ancient Kingdom of Lydia 2700 years ago. They were made of electrum. The first king to have his portrait on the coins was Alexander the Great. Early notes appeared in China about 1200 years ago.

Money has four functions: a medium of exchange, a store of value, a unit of account and a standard of deferred payment. Money as the medium of exchange is believed to be used in one half of almost all exchange. Workers exchange labor for money, people buy or sell goods in exchange for money as well.

The unit of account is the unit in which prices are quoted and accounts one kept. Money is a store of value, for it can be used to make purchases in future.

Money serves as a standard of deferred payment or a unit of account overtime.

Money is very useful thing for everybody and it’s very difficult to earn it.