Economics is “a social science concerned mainly with the description and analysis of the production, distribution, and consumption of goods and services”. It mainly focuses on the behaviour and interactions of economic agents and how economies work.
There are three types of economies. They are
- Market Economies: The market economy is an economy which mainly depends on the interplay of supply and demand for the decisions on production, distribution, and investment.
- Centrally planned Economies: These are decided by the central authority or by the government.
- Mixed economies: Mixed economies share the characteristics of both market economies and centrally planned economies.
Economics are broadly divided into two branches
Micro Economics: It is the study of the economic behaviour of individuals, households and firms’ in decision making and allocation of resources. Eg: Supply and demand in individual (Textile Market) markets, Individual consumer behaviour. e.g. Consumer choice theory Individual producer behaviour, Individual labour markets, g. demand for labour wage determination in that individual market
Key components involved in Micro Economics:
- Theory of Consumer behaviour : This theory states that a rational Consumer allocates his income for the purchase of different goods and services with the aim to maximize his satisfaction.
- Theory of Producer behaviour: This theory states that a rational producer has to decide what to produce and how much with the aim of profit maximization.
- Theory of Price: This is the theory which tells us how prices are determined in the market.
Macro Economics: Macroeconomics is the branch of economics that deals with the behaviour and performance of an economy as a whole. Eg: Employment, Growth rate of National output, GDP, Inflation, General Price level and stability
- PPC (Production possibility curve): It shows different combinations of goods which can be produced with given resources and technology
- Opportunity cost: It is the value of factor which is the loss of other alternatives when one alternative is chosen
- Marginal Opportunity cost: The rate at which output in use1 is lost for every additional unit of output in use 2 it implies marginal opportunity cost