Importance Of Economics

By Somitra Sharma

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Economics deals with the laws and principles which govern the functioning of an economy and its various parts. An economy exists because of two basic facts. Firstly, human wants for goods and services are unlimited and secondly, productive resources with which to produce goods and services are scarce. Therefore, an economy has to decide how to use its scarce resources to obtain the maximum possible satisfaction of the members of the society. It is this basic problem of scarcity which gives rise to many of the economic problems.

There has been a lot of controversy among economist about the true content of economic theory or its subjects matter. The subject matter and scope of economics has been variously defined. Each definition is incomplete inadequate and because of various conflicting definition, some confusion has been created about the nature and scope of economics.

The subject matter of economics has been divided into two parts: microeconomics and macroeconomics. In microeconomics we study the economic behavour of an individual, firm or industry in the national economy. It is thus a study of a particular unit rather than all the units combined.

We mainly study the following in microeconomics:

  1. Product pricing;
  2. Consumer behavior;
  3. Factor pricing;
  4. Economic conditions of a section of the people;
  5. Study of a firm; and
  6. Location of a industry.

In macroeconomics, we study the economic behavior of the large aggregates. It includes the overall conditions of the economy such as total production, total consumption, total saving and total investment in it.

We mainly study the following in macroeconomics:

  1. National income and output;
  2. General price level;
  3. Balance of trade and payments;
  4. External value of money;
  5. Saving and investment; and
  6. Employment and economic growth.

The problem of scarcity and choice making can be depicted using the tool of production possibilities curve. The basic economic problems of what, how and for whom to produce can be solved in many ways by an economy. If it gives the whole charge of the economy, to private ownership we get capitalist economy, to public ownership we get socialist economy and jointly to private and public ownership we get mixed economy.

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