Economics is the study of how individuals and societies make choices subject to constraints. The need to make choices arises from scarcity. It is the science of choice.
It studies the human behaviour in matching the limited resources with the unlimited wants. The scarcity of resources for fulfilling unlimited wants, gives births to economic problem. Every economic problem is the problem of choice and valuation. The wants that are unlimited, have to be satisfied by employing, limited resources. These limited resources are further restricted by the fact that these resources have alternative uses.
The wants, on the other hand, are although unlimited but having difficult intensity levels are prioritized or graded.
The economic theory or Economics is thus, the science of employing limited resources having alternative uses, against unlimited wants, in order to achieve maximum level of satisfaction.
The following are some important and basic terms of economics
1. Ends / Wants
Human wants and needs are unlimited. These are prioritized or graded.
2. Means / Resources
Means are limited and have alternative uses.
3. Business Economics
- Economics as a discipline provides concepts and precepts.
- These economics concepts and precepts together furnish us the tools and technique of analysis.
- By using these techniques and tools we come to under stand business practice and environment.
- This understanding helps us in decision making as well as business decision taking.
- This decision (made or taker) can also be analyzed for rationality and optimality with the help of these tolls and techniques.
Business economics tries to explain the relationship of business polices with the economic principles. It in turn, tries to bridge the gap that exist between economic theory and business practice thus business economics is more comprehensive and broad based as compared to managerial economics. It also has more practical utilization by virtue of having integrated sophisticated techniques of econometrics and operational research.
4. Economic Problem
These are primarily the problems of choice and valuation encountered at any level. It is present in every economic activity like in consumption, production or exchange faced by economic agents like house-hold and firms at micro level and industry or economy at macro level.
5. Economic Activity
Economic activity is basically the matching of end and means rationally in order to get optimality. The result (and objective) of economic activity is creation of surplus value. Every economic agent has to match ends with means. He either has to maximize satisfaction by matching means with ends or ends to the means. After matching, he has to go for that combination / choice that can maximize his satisfaction.
6. Economic Rationality
Rationality is the behavior pattern of economic agents. The concept implies that the economic agents are capable of calculating pain and/or gain involved in an economic activity and they are always in pursuit of net gain, i.e. they decide, rationally, for optimality.
Optimality is the result or consequence of rationality. Optimality implies that economic agents works for the achievement of maximum satisfaction by employing limited resources in such a way that they get maximum possible utility out of it. Theatrically, we can think of absolute optimization by way of absolute maximization of gain or absolute minimization of pain. But in reality optimization has reference to constrained maximization / minimization.
8. Economics Concept
There are various economics concepts. Each concept has specific meaning s in certain specific contest Demand is a concept for example in the context of market, it mean the willingness of a buyer along with the ability to purchase. Economics concepts are like demand supply cost, profit utility etc.
9. Economic Precepts
several economics concepts together constitute a precept. Precepts are principles policy proposition etc. Some precepts are verifiable and can be tested, whereas, some are not variable. Examples of precepts
- Scarcity is the source of economic problems.
- The decision makers use to minimize the opportunity cots.
- The consumer has to maximize utility.
- Demand and Supply are related to price.
- Firms undertake transformation process to create and maximize surplus (profit).
10. Economic Tools and Techniques
The methodology used for economic analysis is constituted by certain tolls and techniques. The methodology is used for collection, processing and analyzing data for drawing inferences. Various methods from Statistics, Economics, Matrix Algebra, and Accounting are utilized by economists. The tools like tables, bar charts flow charts, diagrams, simple equations etc and a lot more constitute tools and technique for economic analysis.
Business is an economic actively undertaken with a view of creating surplus. There are various types of businesses e.g. manufacturing, construction, agriculture, banking, transportation etc. Business represents transformation of inputs into value added outputs. These outputs have, therefore, greater value as compared to the inputs and can be either in the form of gods and/or services.
12. Transformation process
The process of transforming a set of inputs into a value added outputs is called transformation.
13. Economic Goods
The articles that satisfy any human want are called goods. The goods that are available for free are called free goods. But economics is concerned with the economic goods. Economic goods, contrary to free goods are scarce resources and as such are bought and sold at certain price. Within economic goods, we have consumer goods, producer goods, capital goods, merit goods like essential goods and non merit goods etc. With reference to their use, goods can be single use goods or may have repeated use value (durable-use goods). The goods, by virtue of their ownership can be grouped like public goods (owned by government) and private goods (owned by private individuals).
The output produced by service industry is referred to as services. These services serve the purpose of consumers, producers, distributors etc and are exchanged due to (and according to) their value. Services can be professional and non-professional, financial and non financial, private and public etc. Hospitals, Banks, Shipping, and Education etc are all providing services.