Text 1: What is economics?
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Human beings have lots of wants. Usually we want love, social recognition, material necessities and comforts of life. Our desire to improve our material well-being is the concern of economics. More specifically, economics is the study of the behavior of human beings in producing, distributing and consuming material goods and services.
To produce anything, we need resources, or factors of production — land, labor, and capital (buildings and machinery). Factors of production are used to produce final goods and mechanism which satisfies our material wants. This is done through the organizational mechanism which we call the economic system or economy. But we cannot produce everything in the quantities we desire. The quantity of the available resources is limited or scarce. Scarcity is a basic fact of economic life. So, economics is concerned with the efficient use of scarce resources in the production of goods and services to satisfy material want; the economy means a system for the management, use and control of the money, goods and other resources of a country, community or household.
Understanding how various economies work is the basic purpose of studying economics. We want to know how an economy is organized, how it behaves, and how successfully it achieves its basic objectives. What do the economists do? They formulate economic principles which are useful in setting policies designed to solve economic problems. The economists gather facts which are relevant to a particular problem or specific segment of the economy. This task is sometimes called descriptive or empirical economics. Principles and theories — the result of economic analysis — bring order and meaning to a number of facts by tying these facts together, putting them in correct relationship to one another, and generalizing upon them. Economic principles are particularly valuable in formulating economic policy designed to solve problems and control undesirable events.
Economists are likely to move from theory to facts in studying economic behavior as they are to move from facts to theory. Started more formally, economists use both deductive and inductive methods. Induction means deriving principles from facts. Deduction involves stating a hypothesis and then gathering facts to determine whether the hypothesis is valid. The deductive method goes from the general to the particular, from theory to facts.
Some economic principles are concern with macroeconomics, while the others are connected with microeconomics. Macroeconomics is the branch of economics that focuses on the behavior of an entire economy — the «big picture». In macroeconomics we worry about such national goals as full employment, control of inflation, and economic growth, without worrying about the well-being or behavior of specific individuals or groups. The essential concern of macroeconomics is to understand and improve the performance of the economy as a whole.
Microeconomics is the branch of economics that is concerned with the details of this «big picture». It focuses on the individuals, firms and government agencies that comprise the larger economy. Here we concentrate upon such things as the output or the price of a specific product, the number of workers employed by a single firm and so forth. Microeconomics also studies how government activities such as regulations and taxes affect individual markets. Besides microeconomics tries to understand what factors affect the prices, wages and earnings.
Four major economic goals are widely accepted in many societies.
Full employment. Suitable jobs should be available for all who are willing and able to work.
Price stability. Sizable upswings or downswings in the general price level, that is, inflation and deflation, should be avoided.
Economic growth. The production of more and better goods and services, or, more simply stated, a higher standard of living, is desired.
An equitable distribution of income. No group of citizens should face stark poverty while other citizens enjoy extreme luxury.
In each case, the goal itself is formulated through the political process. The economist’s job is to help design policies that will allocate the economy’s resources in ways that best achieve these goals.
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