FUNDAMENTALS OF ECONOMICS
1. ECONOMY :
Greek Origin OIKONOMIA which means Household Management (in sense of management of material resources). Economics is a study of how society manages its scarce resources. It studies how individuals, firms, governments and other organizations within our society make choices and how these choices determine society’s use of its resources. This involves two basic ideas - i). Goods are scarce. ii). Society must use its resources efficiently.
According to Alfred Marshall, a British Economist, Economics is a study of mankind in the ordinary business of life. It examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisite of well being.
2. MACRO ECONOMICS :
The study of aggregates such as output, employment and price level for the economy as a whole e.g. Indian Economy, Russian Economy etc. The objective is to find out how the levels of these aggregate measures are determined and how they change over time.
Macroeconomics is policy oriented. It askes, to what degree can government policies affect output and employment? To what degree is inflation the result of unfortunate government policies? What government policies are optimal in the sense of achieving the most desirable behaviour of aggregate variables such as level of unemployment or the inflation rate? Should government policy attempt to achieve a target level for foreign exchange rate? Etc.
3. MICRO ECONOMICS :
It is the branch of economics that deals with choice and decision making process by individual units such as consumer, firm, industry etc. In microeconomics, we study the behaviour of individual economic agents in the market for different good and services and try to figure out how prices and quantities of good and services are determined through the interaction of agents in the market. Microeconomic study deals with what choice people male, what factors influence their choices and how their decisions affect the goods markets by affecting the price, the supply and the demand.
4. CAPITALISTIC ECONOMY :
A type of economy in which the means of production are owned by private individuals or organisations and they are free to make use of them in any manner with a view to making profit. The government does not interfere or control such an economy and profit is the driving force behind all economic activities and decisions. It is also referred to as FREE ENTERPRICE ECONOMY or LASSIEZ FAIRE ECONOMY. The decision of what to produce and at what price to sell are taken by the market, by private enterprises in this system with the State having no economic role.
5. STATE ECONOMY :
In this type of economy, the decisions related to production, supply and prices are all suggested to be taken by the state only. There are two sub types -
a). SOCIALIST ECONOMY - Emphasise on collective ownership of means of production (property and assets) and also ascribe a larger role to the state in running the economy.
b). COMMUNIST ECONOMY - Advocates state ownership of all properties including labour and absolute power to state in running the economy. Such economies are also known as Centralized Economies, Centrally Planned Economies, Non-Market Economies.
6. MIXED ECONOMY :
An economy in which both private and public sector co-exists. This is a combination of methods and goals of both capitalism and socialism, where some economic activities are carried out by individuals or firms with the use of market forces, while some other are carried by institutions under state ownership and control. India is a good example of economy in which both private and government sector exists side by side.
7. SECTORS OF ECONOMY :
a). PRIMARY SECTOR - In this, economic activities depends mainly on the exploitation of natural resources. Agriculture an agriculture related activity, mining etc are the primary sectors of economy.
b). SECONDARY SECTOR - In this, economic activities mainly involves manufacturing. All industrial production where physical goods are produced comes under secondary sector. E.g. industries, construction etc.
c). TERTIARY SECTOR - In this, economic activities involves providing services to consumers, including a wide range of businesses such as schools, hotels, hospitals, financial institutions etc.
8. FACTORS OF PRODUCTION :
Inputs used in various combinations for the production of goods and services to make an economic profit. The four main factors of production are -
a). Land b). Labour c). Capital d). Entrepreneurship
9. PROTECTIONISM :
A policy wherein a country tries to shield its own industries from international competition. These are formulated to give impetus to domestic economy and entails the adoption of certain practices to drive growth and allow for domestic development e.g. imposing import tariff to discourage import, creating domestic subsidies to encourage competition against foreign goods etc.
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