Category: Basic

Unlike physics or chemistry, economics deals with human beings whose behavior is unpredictable. For example:

• A consumer may choose an expensive phone over a cheaper one because of brand loyalty.
• Investors may sell stocks out of fear, even when logic suggests holding them.

• Positive Economics: Based on facts and cause-effect relationships.
  Example: “Increasing the minimum wage will increase labor costs for businesses.”
• Normative Economics: Based on opinions and value judgments.
  Example: “The government should increase the minimum wage to reduce poverty.”

Both are important because policymakers need facts (positive) as well as social goals (normative).

Case Study 1: COVID-19 Pandemic (2020)

The global pandemic highlighted the importance of economics. Governments had to make tough choices:

• Should they spend more on healthcare or on keeping businesses alive?
• Should they print more money to help citizens, even if it risks inflation?

The crisis showed how scarcity and choice are central to economic decision-making.

Case Study 2: Oil Price Fluctuations

When oil prices rise, transportation becomes expensive. This leads to higher prices of food and goods. Economists study these ripple effects to suggest policies like subsidies or alternate energy sources.

A. Importance for Individuals

• Helps in budgeting and personal finance.
• Guides decisions on savings vs. spending.
• Explains job market trends (e.g., why IT jobs are growing faster than agriculture jobs).

B. Importance for Businesses

• Companies use demand and supply analysis to set prices.
• Helps in forecasting market trends.
• Guides decisions on production, hiring, and investment.

C. Importance for Governments

• Helps design policies on taxation, subsidies, and welfare programs.
• Used to control inflation and unemployment.
• Guides trade negotiations and foreign investment policies.

D. Importance for Global Society

• Explains global trade patterns.
• Helps in tackling poverty, inequality, and climate change.
• Guides international organizations like the IMF, World Bank, and WTO.

Economics can be divided into different areas of study:

• Consumption: How people use goods and services to maximize satisfaction. Example: why do some people buy luxury cars while others buy cheaper ones?
• Production: How businesses decide what to produce, in what quantity, and at what cost. Example: why does Apple produce iPhones in China but design them in the USA?
• Distribution: How income and wealth are shared among people. Why are some countries rich and others poor? Why does inequality exist?
• Exchange: How goods and services move through markets. This includes domestic trade and international trade.
• Public Finance: How governments collect taxes and spend money.
• Economic Development: How countries improve living standards, reduce poverty, and create jobs.

Every economy, whether small like a village or large like a country, must answer three central questions:

1. What to produce? – Should resources be used to grow food, make clothes, or build smartphones?
2. How to produce? – Should production rely on machines (capital-intensive) or human labor (labor-intensive)?
3. For whom to produce? – Who gets the goods: only the rich, or also the poor?

Different economic systems (capitalism, socialism, mixed economy) answer these questions in different ways.

The subject of economics has evolved through centuries.

• Ancient Times: Philosophers like Aristotle wrote about household management, trade, and money.
• Adam Smith (1776): Often regarded as the “Father of Economics,” his book The Wealth of Nations explained how free markets and the “invisible hand” guide economic activities.
• Industrial Revolution (18th–19th century): Economics shifted towards understanding factories, mass production, and labor issues.
• 20th Century: John Maynard Keynes emphasized government intervention to stabilize economies, especially during recessions.
• Modern Era: Economics now includes behavioral economics (psychology + economics), environmental economics (climate and resources), and digital economics

Economics is often called the “queen of social sciences” because it touches nearly every aspect of our lives. Whether we are deciding how to spend our pocket money, how businesses decide their pricing strategies, or how governments draft national budgets, economics plays a role.

At its heart, economics studies the relationship between limited resources and unlimited wants. Every society, whether rich or poor, faces the same fundamental problem: resources (like money, time, land, and energy) are scarce, while human desires keep growing.

For example:

• A farmer has only 10 acres of land. Should he grow wheat, rice, or cotton?
• A student has 2 free hours. Should she study, watch TV, or do a part-time job?
• A government has limited funds. Should it build highways, invest in hospitals, or strengthen defense?

Each of these situations involves economic choices.