ECONOMICS

UNIT 1. INTRODUCTION
1.1

DEFINITION AND IMPORTANCE

Economics is the science that deals with the production, allocation, and use of goods and
services.
It is a branch of knowledge that deals with human effort of acquisition, allocation and
utilization of limited resources to optimally satisfy unlimited wants.
o It is important to study how resources can best be distributed to meet the needs of
the greatest number of people. As we are more connected globally to one another,
the study of economics becomes extremely important.
1.2
BRANCHES OF ECONOMICS
A. Macroeconomics
Macroeconomics is the study of the entire economy -- its behavior, main elements and
overarching systems. The scale of these macroeconomic discussions are typically on a
country level and utilizes facts from that country's economic performance -- gross
domestic product, inflation, government interest rates and unemployment. This also
touches upon international trade and the overall impact of imports and exports has on a
country's economic growth.
Sub-Branches of Macroeconomics
Some important sub-topics in macroeconomic discussions are the factors affecting a
country's stabilization policies and supply-side economics. Stabilization policies include the
ability of a government to control its economic growth through employing fiscal and
monetary policies during boom and recession periods. Supply side economics deals with
the country's production rate of its goods and how it can leverage absolute and
competitive production advantages against competing countries: creating a product mix
for optimum export levels and growth.
B. Microeconomics: General
Microeconomics is the study of transactions between people and businesses and how the
flow of money operates between these basic entities. This includes business investment
and personal savings. Microeconomics also focuses on the supply and demand relationship
between buyer and seller and how this ultimately determines equilibrium prices of goods
and services.
Sub-Branches of microeconomics
Microeconomic sub-branches are the study of specific monetary activities that are enacted
by either businesses or individuals. Some significant knowledge bases are the network
effect and consumer theory. The network effect outlines the ability of a micro-economy to
generate additional cash inside its system self-sufficiently. This is illustrated by the money
growth effects of consumer-bank, business-investment and consumer-business
relationships. Consumer theory is the study of how quantitative and qualitative factors
affect consumer spending and saving. Some topics in this theory include the effect of
lending interest rates, labor investment and technological trends have in encouraging
consumerism.
1.3
SCIENCE RELATED TO ECONOMICS
Is economics a Science or an Art?
There are reasons as to why economics is both a science and art. The reasons are mentioned
below under the respective categories of science and art.
i) SCIENCE
Economics is a developing or growing science of increasing importance.

Economics is a science because it is a systematic or organized body of knowledge

where relevant facts are collected, observed and analysed. It is a science just like
history, politics, physics etc- a systematic or organized study of the economics
behavior of man.
Economics studies man and his behavior in relation to wealth
Hence it is also a social science and different from the natural sciences which involves
the study of nature.
Economics is scientific in the sense that it lays down general principles or laws to guide
the economy.
Besides economics is a also a science because economic laws are those which state a
casual relationship between two sets of facts. One set is the cause and the other set is
the effect.
A law is based on the fact that every cause has a tendency to produce some definite
result, if nothing happens to prevent it. Thus economic laws represent economics
tendencies or principles expressing what is likely to happen, other things remaining
equal.
ii) ART
Economics is also an art because it lays down certain rules and directions to achieve
specific goals or good results.
If the rules of the game are followed closely and carefully good results would be
expected.
Economics prescribes certain rules and principles.
E.g.: If poverty is removed from eh society, form the country, the welfare Of the society
will be raised.
Economic novels do not give any readymade conclusions but helps us to solve many
practical problems. Hence it is considered an art.
Economics thus help us to predict tendencies or what I likely to happen because it help
us to solve economic problem.
Economic considerations play a signification role on the local, national and international
affairs.
1.4
THE ECONOMOMIC PROBLEMS
What to produce
How to produce
For whom to produce
Problem of efficiency
Problem of full employment
Problem of growth