Basics of Economics. Difference between Economics and Economy

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Before studying Economics, one must know that Economics is a branch of social science, it is considered a social science because it uses scientific methods to build theories that can help explain the behaviour of individuals, groups, and organizations. Economics tries to explain economic behaviour, which occurs when scarce resources are exchanged. There are lots of data analytics and statistics which are used in Economics theories to help an Economy for analysing performance.

Economics is a social science that deals with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources (Investopedia)

Economics is the social science that studies how individuals and societies choose to use scarce resources. For example – when should it be more expensive to purchase an AC/cooler? Summer, because there is more demand in the summer season than in winter.

Economics teaches us that how the resources can be automatically utilized and how that utilization does not harm other members of the societies.

Economics is dynamic in nature, it is dynamic because of the continuous development of economics. It is very dynamic in nature as it is based on the Nation’s day to day activities which is very dynamic and continues to evolve singularity then and now. It is for this reason that economic laws are defined as a general statement based on trend and not rigid rules.

Starting with difference between economics and economy

Difference between Economics and Economy

Economics is a Greek word ‘Oikonomia’ which is composed of two words ‘Oikos’ and ‘Nemien’, ‘Oikos’ means “Household”; and ‘Nemien’ means “Management” which jointly means “Management of Household Things”

It always focuses on Resources and Resources are Limited, But our wants are Unlimited means Human wants for goods, services and resources that are available Resources, such as Labor, equipment, land, and raw materials are necessary to produce the goods and services we seek but they exist in limited supply.

So, in short, we can say that at this point, Economics is a concept where it manages to satisfy our unlimited wants with limited resources

The model or system used by any country has certain scientific assumptions and concepts. These scientific assumptions and concepts are called “Economics”

In Nutshell, Economics is a science that studies various models or economics and assists in further development of these models for optimum results.

The Economy is a term that can characterize a particular system that has applied the concepts outlined in the study of economics. An Economy is the sum of overlapping relationships between producers and consumers of scarce resources and wealth and is a by-product of various forms of decision making that are part of economic actor. The Economy may vary in size from local neighbourhood market, Global market.

It is a system of elements with a boundary that sees things (such as money and material resources) go in and out of it. And the system is analytically broken down into elements that process the input (coming into the system) into the output (excluding the system)

Every country has its own system or model of dealing with available resources, demand and supply of goods and services. This system or model is called “Economy of Country”. It represents the state or condition of the country in terms of the production and the consumption of goods and services and the supply of money, the relationship between production, trade and the supply of money.

Economics is Theory and its application or its implementation is Economy. For Example- The price of goods increases, the quantity demanded of the good falls, and vice versa, this is a theory, and theory never changes. Now its implementation might be different for different region or country. For example- India has a higher population as compared to the USA so the demand for particular good’s will also be higher in India

‘Economics’ is a complete word, whereas ‘Economy’ is an incomplete word. The economy needs a region to apply those economic theories, For Example- ‘Indian’ Economy, ‘US’ Economy. That’s why it is called Economics is theory and its practice/application in a particular nation is called Economy

“Economics” is the methodology used to analyze or model an “Economy”.

Nature of Economics

Economics thinks of one thing that is Resources, and the Important thing in Resources is ‘Use’. Use also has two classifications, Minimum and Maximum.

Economics never asks for the maximum use of resources or asks for the minimum use, so Economics talks about the middle path, Optimum Utilization of the Resources.

For Basic Essence – When we talk about a country, who live in the Country? People. And what people want, Goods (mobile, clothes, shoes etc)  and Services (hospital, school, university, bank etc), so why do they want goods and services? To maintain the living standards ( these living standards vary from different person to different circumstances), And no Goods and Services can be made without resources and Resources is limited, and who manages them all, Economics.

Whatever has been in the world or has happened before today or what will happen after today in future will be only for resources

  • Vasco De Gama came to India for resources.
  • British came to India for what? Resources. Because India is a resources-rich country
  • Indian ministers visit some country for what? For resources
  • Some other country’s minister visited India for what? For resources
  • America is doing politics in the world, Russia is doing politics in the world for resource

Basic needs and Economics

What are the basic needs of a person? Bread, Clothes & Shelter (Roti, Kapda & Makan). Now in the same needs, things will add, according to one’s income.

Suppose, a man, when he is a school going kid he did not have much needs, but slowly and gradually he raises his needs started increasing, now he needs a bike, a phone, wifi connection.

But, if his parents do not have that much income to afford the things, will they capable to purchase things? No.

Once he started earning a good amount, his needs also started increasing, So income plays a vital role in one need.

  • Income Increases
    • = Living Standards Increase
    • Living standards increase when you start using goods and services
    • Now how to use goods and service depends on your income
    • When income starts increasing, it automatically starts enhancing  goods and service

Now, the work of summarizing the whole thing is of economics, so economics always carry a word with it called  ‘Management’, The Management of Household things.

Sectors of Economy

Every economy tries to maximize the return of economic activities in which it is involved.

Economic activities in an economy are classified into 3 categories i.e Primary Sector, Secondary Sector, Tertiary Sector, Higher services under tertiary activities are again classified into Quartenary and Quinary.

Primary Sector

Primary sector activities are directly connected to natural resources such as land, water, vegetation, building materials, and minerals. It includes Fisheries, Forestry, Pastoral, Agriculture, Mining and Quarrying, Gathering and Hunting. And people involved in this sector are called Red-Collar workers due to the outdoor nature of their work.

Secondary  Sector

The secondary sector uses the natural resource and transforms into valuable products. For Example- Tomato is a Primary resource, secondary sector use tomato to transform this into Sauces.

This sector includes manufacturing, processing, construction industries. People engaged in these activities are called Blue-Collar workers.

Tertiary Sector

This sector includes service that is consumed by us, they provide services to us which includes all service occupations, transport, communication, trade, health, education and administration. These activities help in the development of the primary and secondary sector. These are called White-collar jobs.

Quaternary

The Quaternary sector involves knowledge-oriented activities and people. They are confined to research, training and education. This includes Mutual fund managers, tax advisor, software engineer, Programmers IT, technology developers etc

Quinary

Involves in work related to administration. Confined to the highest level decision making and policymaking, Government officials, judges, CEO etc comes under Quinary activities. They are called Gold Collar jobs.

Also Read: Capitalism, Socialism, Communism & Fascism

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